Draghi’s ten points to save Europe and defeat the coronavirus


Correspondent in Rome

Updated:

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“The coronavirus pandemic is a human tragedy of biblical proportions.” Thus began the article by Mario Draghi, former presidents of the European Central Bank, published on the front page of the Financial Times. His writing has become a kind of European manifesto fighting an invisible and fearsome enemy, against which the old rules are useless and harmful. In summary, Draghi says that we are at war and exceptional laws are necessary in a war to guarantee income to those who lose their jobs and avoid bankruptcies of companies. And that can only be done with high public debt and liquidity to companies. Draghi adds that it is time for the state and banks to intervene “strongly and quickly” to avoid now a “deep recession.”

Mario Draghi’s name has long sounded like the most relevant Italian personality to occupy a high institutional position, including that of the presidency of the Republic, or to head a government of national unity. But Draghi, a discreet character who does not like to show himself, with his article in the FT did not go only to Italy, but to Europe. As in 2012, when with great audacity he saved the euro by promising that it would do whatever was necessary For the single currency, its manifesto has now become a warning and a compass with new coordinates for the European institutions.

Aware of the gravity of the moment, Mario Draghi communicated to the Italian head of state, Sergio Mattarella, the content of his article published in the Financial Times, which has received unanimous support in Italy, and was the basis on which the Prime Minister, Giuseppe Conte, supported himself, at the European Council on Thursday, to oppose the countries of northern Europe, with Germany and the Netherlands at the forefront, supporters of financial rigor. The Italian Prime Minister also had the support of Pedro Sánchez to carry out a definitive plan in a couple of weeks, a plan that, according to Giuseppe Conte, should follow the lines of Draghi’s “manifesto”.

Draghi’s coronavirus manifesto for Europe is summarized by the media in ten points.

1. Depression should be avoided

Companies are already at a loss, the economy is contracting. Many companies are laying off workers. A deep recession is inevitable. “Prolonged depression” should be avoided by acting quickly and strongly.

2. Protect jobs

Citizens must be protected from the risk of losing their jobs. If this is not done, this crisis will emerge with a permanently lower employment rate and production capacity.

3.Immediate liquidity

To protect employment and productive capacity at a time of drastic loss of income, immediate liquidity support serves.

4. Cancel the debts of companies

Businesses will not take advantage of liquidity simply because credit is cheap. Companies with an order book will repay this new debt. But it won’t be like this for everyone. Others will increase their debt to keep their jobs. Your accumulated losses will risk jeopardizing your ability to invest in the future. Your debt will have to be paid. And it will be the State that takes over.

5. The answer lies in the increase in public debt

It is already clear that a significant increase in public debt will be needed to avoid depression. Especially Europe has a state sector, a public machinery and a generalized banking system, which is what is needed now to face the crisis.

6.The role of the State

The state has a role to play in national emergencies, and it must use its budget to protect citizens and the economy against shocks for which the private sector is not responsible and unable to absorb. This is what happens in wars, it happened in the two world wars.

7. This must be done by the State: borrowing to save jobs and guarantee banks

Governments must absorb much of the loss of income caused by the closure of companies to protect jobs and productive capacity. By doing this, the public debt will increase. But the alternative is a permanent destruction of production capacity and the tax base, much more damaging to the economy and public finances. Low interest rates will help manage the high rise in public debt.

8. The role of banks, the vehicle of the State

Banks must quickly lend cash, money, at no cost to companies to save jobs. Banks are the vehicle for state intervention to save the economy. The capital that banks need to carry out this task must be provided by the State, by governments, in the form of public guarantees above all.

9. Get out the slowdown with the old rules and bureaucracy

Neither the regulation nor the rules on guarantees should hinder the creation of all the necessary space in the balance sheets of the banks to give liquidity to the companies for this purpose. The bureaucracy must not stop state and banking interventions.

10. The instruments: bonds, banks and mail

The bond market should help larger companies, the rest requires the network of bank branches and, where possible, of post bank offices. The cost of state hesitation could be irreversible. The memory of the sufferings of the Europeans of the 1920s is more than enough warning. The rapid deterioration of private budgets, caused by the downturn in the economy, must be addressed just as quickly through the use of public budgets, in the mobilization of banks and, as Europeans, by support among European states for a common cause.

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