Europe has been slow to take measures to deal with the economic crisis caused by COVID-19 and the reasons are of a very different order. Andreas Peichl (Fulda, 1979), director of the Center for Macroeconomic Studies at the IFO Institute in Munich, explains in this interview with eldiario.es how the psychology, culture, politics and the very structures of the European Union complicate a coordinated response to the SARS-CoV-2 virus.
Peichl, who is also a professor of economics at the no less prestigious Maximilian Ludwig University in Munich, is part of the group of German economists in favor of the use of Eurobonds in the current crisis. “Mutualizing debt is a good tool for a country to obtain additional resources with which to face the crisis,” says this economist.
Opinions like his, although making their way with difficulty in the Teutonic ordoliberal consensus, are rejected by German political leaders, at least for the moment. However, for Peichl, “If Coronabonds are confirmed to be the best option, the German government will not object. “This interview took place a few hours before the heads of finance of European countries reached a minimum agreement last Thursday to finance aid against the pandemic. .
Why is it so difficult to see an agreement between the members of the European Union to face the economic effects of the crisis caused by COVID-19?
There are many reasons. We are facing a crisis that we have never seen before, at least in the last century. We are talking about a pandemic that, economically, is a shock to demand and supply. People are not going to work, factories are not producing, and consumers are not buying things because in many places they cannot. Unlike the 2008 financial crisis, in which there was a shock in the financial sector and this later had implications for its links with other dimensions of the economy, what is happening now is a shock for all sectors.
There is another reason and it has to do with the sanitary aspect. We know little about the virus. What there are are ideas and theories about it. So there are different strategies put in place in different countries to fight the virus. We will not know for a year or two which strategy is best to contain the virus. In addition there is a problem associated with the virus and that is that one may not know if he is ill or not. It is said that in 50% of cases there are no severe symptoms. You can think of it as a simple cold instead of the new disease. This can have a psychological effect, because we are talking about a danger that cannot be easily grasped. On the other hand, there is another question, the cultural dimension of each country. This also marks how each country is responding to the virus.
Culture, psychology, scientific knowledge … Do all these factors prevent a response to this crisis?
Yes. We have seen this in the past. We are not facing a question of rich and poor. If one remembers the debt crisis, for example, then not only did one intervene to explain the position of each country that could be labeled rich or poor. Culturally, the Nordic and Central European countries opposed debt, while those in the south were in favor of borrowing. Now the same thing is happening.
What do you mean
Conservative countries are betting on lowering taxes and countries more politically inclined to the left are betting on higher public spending. This response is something that is also part of the culture of each country. This is important because in the EU, whose institutions in Brussels are not really a central government, it is the member countries that make the decisions.
You mentioned earlier the 2008 financial crisis and the subsequent debt crisis in Europe. But, in this crisis, Germany is even debating in conservative newspapers like the Frankfurter Allgemeine Zeitung the idea of mutualising debt. Do you think that in this crisis for COVID-19 something has changed in the economic debate?
Yes and no. It is true that even in Germany there is talk of the launch of coronabonos [o eurobonos] as a necessary measure. Others object to that idea on principle. There are people who during the euro crisis opposed eurobonds and now defend them. The reason is that now, it is not the fault of Spain or Italy for having been hit so hard by the coronavirus. In the debt crisis, it was possible to argue what was said: “the situation of the countries with problems is their fault because they got into too much debt in the past.”
Personally, I was always in favor of this type of debt mutualization mechanisms. I think it is something that should be considered as a solution. Also, they are nothing new. There were already these types of bonds in the 60s or 70s if I remember correctly. They were implemented as something temporary. Eurobonds, as they are being debated, would consist of a permanent mechanism. The coronabonos, on the other hand, would only serve for this great crisis and then disappear. But hey, there are also reasons to make them stay. Among other things because if you give politicians a new toy, they will want to keep it.
Germany is a very influential country in Europe. He could be considered the leader in the group of countries that oppose Eurobonds, which also includes Austria or the Netherlands. How do you see the current position on this issue of the German Government?
Whether it is the German government or the government of any country in Europe – and this is the EU’s problem – every government will always have as its objective, first, to satisfy its national interests. Governments pThey may be for or against Eurobonds and, in this sense, there is now a political game and, as in poker, no player is going to start playing by putting their cards on the table.
But in the end, if the coronabonds are confirmed to be the best option, the German government will not object. But first you have to discuss which options can be implemented and which ones make the most sense. Launching coronabonos for launching coronabonos makes no sense. You have to see what other options are on the table, like el European Stability Mechanism (ESM)
But that political game and those discussions are taking place at a time when there are countries experiencing an urgency never seen before. There are people dying and it seems that this happens while the debates are eternal. As we speak, Spain already has 15,238 deaths. What do you think of this situation?
Is right. In the end, the EU is made up of countries that consider, first, what is best for their country and for their voters. It’s a shame. This shows that our EU is not really something common. I personally think that this is not what the EU should be. Ten years ago I was already saying that you had to move towards a United States of Europe.
To what extent is the European Union project in danger?
For the EU there are risk scenarios. We already had ‘Brexit’, that is, the departure of a member country, and that has been followed by the closing of borders, gestures that have shown a lack of solidarity in addition to the debates that consume so much time. At the end of this crisis, there will be people who wonder: What do we want this EU for?
In short, there is a risk that there are more countries that want to leave the EU, but, in reality, I do not think that those risks materialize. Having the EU, freedom of movement and the single currency remain beneficial for most countries. However, I think we have to use this crisis as an opportunity to redefine the EU institutions because they are not made to face this current situation or for the 21st century.
Angela Merkel said in the middle of last March that we are in Germany facing the greatest challenge since World War II. If we are experiencing something similar to the Second World War, why are decisions delayed in the EU? And, another thing, why are there politicians who speak of conditionality when it comes to helping other countries in the midst of a crisis comparable to the Second World War?
This is one of the big problems associated with what I was saying earlier. You don’t see this crisis coming. You see it on the news. For example, here you have seen the images of hospitals in northern Italy. But in Munich, right now, it’s a great day, with a lot of sun. On the street, it is not seen that we are suffering a crisis of these dimensions. The only thing that is strange is that the breweries and their terraces are closed. If we were in a war, you would see destruction. But with this virus, you don’t really see sick people going down the street. The danger is perceived as something distant. People have to understand that this crisis is of the magnitude that you mentioned.
I understand that this general perception of which you speak has also been accused by politicians.
Exact. This is why governments have been relatively slow to react. Many politicians in Germany, for example, spoke at the beginning that the disease was not serious, that we were facing an outbreak like a swine flu or something like that. Look, for example, at the President of the United States, Donald Trump, and what he tweets. Trump is not the best example, but his tweets from three or four weeks ago about the coronavirus have nothing to do with what he writes now. He is a prime example of how this virus has been undervalued from the start.
At a European level, what do you think of the measures that have been taken so far to deal with the crisis caused by COVID-19?
The German government, for example, listened to those who advised act quickly and forcefully. He put very large numbers on the table at once. Phrases have been said such as “it will do whatever it takes to save the economy.” I think this makes a lot of sense in the face of the uncertainty posed by the current situation. Germany was in a good position to do this. Other countries have more limitations.
On the other hand, regarding the European Central Bank (ECB) and what it can do, the following must be taken into account: we are already in a situation with interest rates very close to 0%. Interest rates cannot be much lower. The ECB is limited. The only thing that can be done, therefore, is to make use of fiscal policies. Namely, increase government spending and that the Government inject money into the economy. The EU cannot do this, because the EU has no tax revenue. Therefore, mutualising debt is a good tool for a country to obtain additional resources with which to face the crisis.
Countries like Italy or Spain are also financially limited. Is that why it is from these countries that more calls are heard in favor of mutual debt?
Exact. The deficits of these countries will increase interest if they borrow money. It could be feared, in the case of Italy, that it will go bankrupt. That is why in countries that are in such a situation they will want to use coronabonos, a tool that would allow them to access funds. Using the ESM, however, has a problem. Accessing their funds means following very strict rules, limiting the ability of governments to act.
What do you think of when speaking, for example from Spain, of launching a new Marshall Plan for Europe?
There are many possibilities and details to think about with such an idea. In the end, the question to be answered is the following: Who is going to pay what in this crisis? Someone has to pay the bills for all of this, and this can be done in many ways. Either with money from your citizens or through a redistribution at the EU level or through credits that will be paid by future generations. I imagine that the adequacy of a Marshall Plan depends on how it is designed.