The Eurogroup of eurozone finance ministers is struggling to agree on a
macroeconomically significant coordinated fiscal response to the
enormous recessionary effects of the COVID-19 pandemic. The result, I
fear, will be heroic announcements heralding impressive numbers that
disguise the irrelevance and timidity of the agreed policies.
The first indication of this comes from the recent announcement of the German government’s financial aid package to the private sector. While the international media referred to it as a €550 billion ($600 billion) bazooka, close inspection suggests it is no more than a water pistol.Comprising tax deferments and large credit lines, the German package reveals a serious misunderstanding of the nature of the crisis.
And it is the same misunderstanding that turbocharged the euro crisis a decade ago. Now, as then, companies and households are facing insolvency, not illiquidity. To arrest the crisis, governments must go “all in” with stupendous fiscal expansion. But that is exactly what the German package was meant to avoid.
Finance ministers from countries in deeper economic trouble than Germany (for example, Italy and Greece) will undoubtedly try to push for the necessary fiscal expansion. But they will hit the brick wall of opposition from the German finance minister and his loyal supporters within the Eurogroup.
Soon the “southerners” will fold their tent, their acquiescence sealing yet another fiscally insignificant Eurogroup package that the oncoming recession will steamroll.How can I be so sure?
Because I’ve been there. I represented Greece at the Eurogroup meetings in 2015, where the defeat of our government’s desperate struggle to avoid more loans at the expense of deeper recession was decided. The methodical manner in which those Eurogroup meetings closed down any avenue to a rational debate on the appropriate fiscal policies holds the key to understanding why the Eurogroup will also fail to mount an effective fiscal defense against the pandemic-induced shock.
One insight from those crucial Eurogroup meetings five years ago stands out: any finance minister from a struggling country who dares oppose the Berlin line, or to propose solutions that benefit the majority of Europeans rather than the financial sector, is in for a hard ride.
Read more at: Europe Is Unprepared for the COVID-19 Recession by Yanis Varoufakis - Project Syndicate
The first indication of this comes from the recent announcement of the German government’s financial aid package to the private sector. While the international media referred to it as a €550 billion ($600 billion) bazooka, close inspection suggests it is no more than a water pistol.Comprising tax deferments and large credit lines, the German package reveals a serious misunderstanding of the nature of the crisis.
And it is the same misunderstanding that turbocharged the euro crisis a decade ago. Now, as then, companies and households are facing insolvency, not illiquidity. To arrest the crisis, governments must go “all in” with stupendous fiscal expansion. But that is exactly what the German package was meant to avoid.
Finance ministers from countries in deeper economic trouble than Germany (for example, Italy and Greece) will undoubtedly try to push for the necessary fiscal expansion. But they will hit the brick wall of opposition from the German finance minister and his loyal supporters within the Eurogroup.
Soon the “southerners” will fold their tent, their acquiescence sealing yet another fiscally insignificant Eurogroup package that the oncoming recession will steamroll.How can I be so sure?
Because I’ve been there. I represented Greece at the Eurogroup meetings in 2015, where the defeat of our government’s desperate struggle to avoid more loans at the expense of deeper recession was decided. The methodical manner in which those Eurogroup meetings closed down any avenue to a rational debate on the appropriate fiscal policies holds the key to understanding why the Eurogroup will also fail to mount an effective fiscal defense against the pandemic-induced shock.
One insight from those crucial Eurogroup meetings five years ago stands out: any finance minister from a struggling country who dares oppose the Berlin line, or to propose solutions that benefit the majority of Europeans rather than the financial sector, is in for a hard ride.
Read more at: Europe Is Unprepared for the COVID-19 Recession by Yanis Varoufakis - Project Syndicate
No comments:
Post a Comment