By GUY VERHOFSTADT – 3/27/20
Guy Verhofstadt is a member of the European Parliament with Renew Europe.
Today, the coronavirus crisis in Europe is mainly a public health crisis. Tomorrow, it will be a serious economic crisis.
The jobs and livelihoods of millions of Europeans are at stake. Large companies have ample buffers and credit lines, but people on a modest salary, the self-employed or small company owners are at risk. The repercussions of bungling our response will be dire.
To avoid the worst, Europe has to learn from its past mistakes and act quickly, decisively and with a sense of solidarity. Only by sharing the burden of this challenge do we have a chance of succeeding.
Yes, our national social security mechanisms and government emergency measures will absorb some of the blow. But if we want to prevent this from turning into a new sovereign debt crisis like the one we saw in 2012 — and from which we’ve only barely recovered — we’ll have to come up with a common European approach.
National governments so far have failed to find agreement on a way forward. That much was clear at Thursday’s European Council meeting. Clearly this method isn’t working.
It’s high time now that the European Commission steps in and takes responsibility for designing a common proposal that can match the coronavirus package of nearly $2 trillion being launched in the United States.
The Commission won’t have to start from scratch. The European Central Bank has already made the right move by proposing a “Pandemic Emergency Purchase Program” (PEPP) of €750 billion and announcing there will be “no limits” in order to keep the euro afloat and “the spreads” between the cost of borrowing of heavily indebted countries and Germany’s under control.
But we should not let the ECB fight this alone. The Commission should be the one to develop the initiative to first stabilize and then assist the recovery of our public finances and our economies. And the size of that initiative will have to be much bigger than the €250 billion the Eurogroup wants to mobilize through the European Stability Mechanism.
Let’s not make the same mistake we did in 2008 by being reluctant and slow to react. That approach — which was too little, too late — made the economic crisis in Europe much longer and more painful than it had to be.
Most economists estimate the total damage done by the coronavirus epidemic at 8 percent of the European GDP, the equivalent of €1 trillion. To mitigate that damage, the Commission urgently needs to launch a solid European Stability and Recovery Program (ESRP) worth €1 trillion.
The “stability” part of the program — which would consist mainly of loans for member countries in trouble — can be covered by the ESM, but only if the conditionality foreseen in the mechanism is scrapped.
For the “recovery” part — meaning bridge and investment credits to the real economy — the Commission should propose a new Euro Safe Asset or Recovery bond that is backed not by a classic “mutualization” between member countries, but by a “pan-European guarantee.”
This guarantee would be based on a reformed European budget funded by new own resources for the European Union, which can be drawn from digital tax, carbon tax, and the European Trading Scheme, among other programs.
This safe asset or bond would be actively supported by the ECB through the PEPP program and would under no circumstance affect the debt position of any of the member countries. On the contrary, it would provide a low-risk opportunity to institutional investors worldwide who will pump money into Europe’s real economy to help its recovery.
Some eurozone countries have opposed such a bond, on the basis of a “moral hazard.” This is ludicrous.
Now is the time to show solidarity with one another and avert a new economic disaster.
Unlike in the sovereign debt crisis of 2012, there’s no culprit here. No one in Europe is to blame for the virus or the economic fallout we’ll experience as a result.
Italy had the bad luck of being in the firing line; Spain’s health care system is suffering from the difficult austerity measures the country had to take in 2012. There are no “lazy” or “industrious” countries in this scenario, only affected people.