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The economic pandemic

The images of military trucks full of coffins coming out of Bergamo or those featuring exhausted nurses and doctors - who stay loyal to that oath of Hippocrates that has been accompanying us for more than two thousand years - have deeply affected the sensitivity of each one of us. However, behind the health emergency, a social one is also growing, signalled by the first episodes of difficulty in buying basic necessities. It is therefore important to try to avoid that Covid-19 disease will be added to other forms of social "illnesses", dangerous for a country that is certainly not free from internal problems. In addition to paralyzing the economy of much of the globe, the pandemic highlighted further internal political issues involving the European countries. Such contrasts were thought to have been put aside when the Commission took office, at the end of 2019. However, the reaction not only of the institutions, but also of the Member States, was late and inefficient. In addition, the disastrous statements pronounced by Christine Lagarde, President of the ECB, left a feeling of scarce interest regarding the management of Covid-19, even if she then tried to make up for it.

The economic costs of the pandemic

To the question "How much is this going to cost ?", the only honest answer is that we don't know. No one has ever had to completely shut down a country, except those essential activities that cannot be stopped. The understandable concern about a dramatic economic crisis is becoming increasingly common among people. Just consider the researches made by Italian people on Google in the last 2 months: the item "economic crisis" has seen an increase of 1000% compared to the first week of February. Therefore many analysts have started to publish studies where they tried to answer the question with which we opened the paragraph.

At the beginning of March, the Organisation for Economic Cooperation and Development (OECD) published an extraordinary report [1] to shed some light on the constantly evolving issue. They hypothesized two possible scenarios: up to the first, the positive one, analysts expect a slowdown for the first half of 2020, followed by a recovery phase. This hypothesis seemed to be very optimistic, given the speed of virus spread and the domino effect which has caused the present paralysis. But the OECD also suggested a worse possibility. According to it, the GDP of the Eurozone is estimated to fall between 0.3% and 0.8%.

Either way, the problem of this report concerns its issuing date: it was published on 2 March, when China was the only country going through the most dramatic moment. Nobody expected that a country of 60 million like Italy would stop any activity for an indefinite period.

Two weeks later, during an interview between Bloomberg and the Secretary General of the OECD,[2] the former said that one of the main troubles affecting the economies of OECD countries is the asymmetry of the contagion. Let's try to give an example for a better understanding: let's suppose the existence of a country A and B. A supplies B with the raw materials with which B makes finished products; first the contagion spreads in A, blocking the supply of raw materials for a month, then it spreads in B, blocking everything else for another two months.

But the virus has a further economic consequence: it affects supply and demand, making it much more difficult to find solutions. Therefore, the Secretary called on governments to cooperate with each other so that some countries do not go belly up.

Coming to more updated forecasts on the recent Italian lockdown situation, Confindustria published a study[3] where it estimates that if the health emergency were to end in May, in the second quarter of the year, GDP would drop by 10%, compared to the same period in 2019. A drastic collapse that will require unprecedented efforts in Republican history, in order to recover.

The International Monetary Fund has created a blog, on its website, where it publishes daily analyses on the impact of Covid-19 on economies. Poul Thomsen, director of the IMF's European Department, says the impact on growth will be enormous[4]. The non-essential sectors whose activity has stopped are worth about a third of a state's output, and every month of inactivity risks to reduce GDP by 3 percentage points, not to mention the externalities that spill over to the rest of the economy. As social-democratic countries already have active welfare systems, they have a small advantage compared to those countries without social protection mechanisms. However, Thomsen immediately brings us back down to earth: policy makers will have to face demand that's far greater than the numbers the European welfare has been planned for. Extraordinary measures are therefore needed.

The European crossroads

Surely it is not easy to organise a quick and effective response to a crisis of such magnitude. Every country has launched extraordinary measures, trying to limit the damage as much as possible. After an initial moment of uncertainty, the same has done the ECB, by launching a further plan of purchases of securities of 750 billion. Despite this, the situation is not the greatest. The two crises, both in health and economics, have revealed the structural and political shortcomings of the European Union. As the numbers of these weeks have shown, a lack of coordination among member countries weakened their action, aimed at limiting the effects of the virus. Although the European Agency for Combating and Preventing Infectious Diseases published a set of guidelines to be adopted at the end of January, there has been no common response. Today this common response also seems to be absent, in economic terms, as the last European Council has shown. The clash that has emerged between some Countries of the North, so called "rigorists", and those of the South, on the issue of extraordinary bonds to face the emergency, has brought to light a pre-existing problem. In fact, many debates about member states' poor cooperation had been already highlighted by the migratory crisis and the sovereign debt crisis. The article written by Mario Draghi in the Financial Times[5] seems an invitation to whatever it takes 2.0, needed to preserve European integrity. What is at stake here is the survival of the Union, not so much from an institutional point of view, but from a value point of view. If not even the Covid-19 emergency, (and the number of deaths it is causing) succeeds in overcoming national mistrust and selfishness - which preclude greater integration capable of responding to challenges that the globalised world will continue to pose - public opinion could begin to seriously question the meaning of the European Union. Article 3 of the Lisbon Treaty lists all the values on which the EU is based: paragraph 1 states that "The Union's aim to promote peace, its values and the well-being of its peoples"; paragraph 3 also specifies that it promotes economic, social and territorial cohesion, and solidarity among Member States.

However, the said values that we're proud to inherit need to be strengthened day by day. Today we are at a time when there is a lack of solidarity and common vision among the Member States. In the pages of the Espresso[6] Massimo Cacciari hopes to find himself in a future in which we will look to 2020 as the turning point, in which the crisis profoundly changed the ruling class: a class that no longer chased "emergencies", but had become able to anticipate them. In a globalized world without governance, could we not expect the economic crisis, the migration crisis and finally the pandemic?

Written by Leonardo Chierici.

Translated by Simona M. Vallefuoco.

Original artcile: https://mondointernazionale.com/hub/la-pandemia-economica published on April 04, 2020

Sources:

[1] http://www.oecd.org/economic-outlook/

[2] https://www.bloomberg.com/news/videos/2020-03-17/oecd-says-we-ve-never-been-in-a-problem-this-big-video

[3] https://www.confindustria.it/home/centro-studi/temi-di-ricerca/congiuntura-e-previsioni/tutti/dettaglio/rapporto-previsione-economia-italiana-scenari-geoeconomici-primavera-2020

[4] https://blogs.imf.org/2020/03/30/europes-covid-19-crisis-and-the-funds-response/

[5] https://www.ft.com/content/c6d2de3a-6ec5-11ea-89df-41bea055720b

[6] https://espresso.repubblica.it/plus/articoli/2020/03/17/news/coronavirus-italia-domani-massimo-cacciari-1.345578


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  • L'Autore

    Leonardo Cherici

    Leonardo Cherici si è laureato in Filosofia Politica all’Università di Padova con una tesi sul processo di integrazione europeo e sulle teorie politiche che lo hanno ispirato. Si è poi iscritto ad una Laurea Magistrale in Relazioni Internazionali presso l’Università Cattolica di Milano, discutendo una tesi di economia politica nella quale si analizza il recente fenomeno di aumento della diseguaglianza economica e la sua relazione con l’innovazione tecnologica e la globalizzazione.

    All’interno di Mondo Internazionale ricopre la carica di Vicedirettore di Redazione, coordinando il lavoro dei nostri autori. Fin dal 2019 scrive per l’Area Tematica Europa e per Framing the World

    Leonardo Cherici graduated in Political Philosophy from the University of Padua with a thesis on the European integration process and the political theories that inspired it. He then enrolled for a Master's Degree in International Relations at the Catholic University of Milan, discussing a thesis on political economy in which he analysed the recent phenomenon of increasing economic inequality and its relationship with technological innovation and globalisation.

    Within Mondo Internazionale he holds the position of Deputy Editor-in-Chief, coordinating the work of our authors. Since 2019 he has been writing for the Europe Thematic Area and Framing the World


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