What has happened, and continues to happen, in Europe and in particular in the euro area, is something strange, incredible and unreasonable.
Among the unfortunate characteristics of the coronavirus pandemic is its egalitarian nature. It has affected all continents, and especially the most disadvantaged as in the case of many African and South American countries. However, not only were the effects not same between countries with very different geographical locations in the world but even between the countries of the northern hemisphere that are generally more capable of a reaction being economically endowed.
The case that, initially, was considered exemplary was that of China which proved capable of keeping the pandemic under control in the first months of the year in which it occurred. But it was not an isolated case. We have seen small and large countries react successfully - from South Korea to Japan and then New Zealand, as well as Australia, and Israel - even though they abandoned the citizens of the Palestinian territories to the mercy of the pandemic.
Today the case with an important outcome is that of the United States. One hundred million citizens have been vaccinated in a few weeks and Joe Biden announces that another one hundred million will be vaccinated this spring. Herd immunity will thus be obtained. The result is important not only for the success in the current management of the pandemic. The very serious reason is that the virus is already changing its nature and over time, as happened in South Africa, the treatments underway could prove inadequate, multiplying the infection and the risks for human life.
The cases we have mentioned are particularly relevant, showing the possibility of facing the pandemic with a good success. And it is unequivocal that not trying all possible means, when they exist, is an unacceptable and tragic political failure. The European case is as indicative as it is unfortunately exemplary.
Boris Johnson underestimated the risks in an almost grotesque way in the spring of last year. Then, unfortunately for him, he suffered a severe case of the virus. He came out personally exhausted. But above all, he came out of it by changing the political orientation of the government by 180 degrees, placing immunization at the center of political initiative. The result was surprising. The end of new pandemic cases was announced at the end of March. Not a rare case, as we have seen, but unique in Europe.
The comparison with what has happened, and continues to happen, in Europe and in particular in the euro area, is something strange, incredible and unreasonable. In chronological order Italy, then Spain, Germany, France, not to mention Belgium and the Netherlands, continue to be the most affected among the economically advanced countries.
The reason is as clear as the failure of the centralized intervention policy for which the European Commission was responsible. Since the summer of 2020 it has been moving to provide the necessary vaccines. It appeared to be a timely initiative at the central level in an area of over 400 million citizens. It appeared to have been better than acting at a individual member country level.
At least that was the optimistic prevailing opinion. Instead, the failure was total. Some of the richest and most advanced countries have been hardest hit. The pandemic that seemed to be tamed exploded violently between the end of the year and the beginning of the new in Italy, France, Spain, Germany, to name the most important countries of the eurozone – about two hundred fifty million inhabitants, without any significant reaction, if not for the unfounded assurances coming from the Brussels bureaucracy.
In the European Union, large quantities of vaccines of various origins are produced - including some unknown production sites such as in the case of a factory near Rome. The fact that they were exported to countries that badly needed them, such as in the case of Africa, may be understandable and even desirable. But that hundreds of millions of citizens of one of the richest economic area on the planet, have remained deprived of the necessary vaccine without plausible reason is inexplicable. It is the failure of the Brussels bureaucracy that governs the fate of the European Union. In any case, it was probably predictable, but not taken into account.
So what to do? First, take note of the failure of the European authorities and adopt the necessary measures. The Brussels authorities have allocated 750 billion euros available to the countries of the European Union to deal with the economic consequences of the pandemic. In this context, Italy and Spain are the two countries that will draw the most, that is approximately 350 billion euros. Since the figures are voiceless, the only way to gauge this amount is to make some useful comparisons.
The two countries account for a total population of about one third of the inhabitants of the United States. Joe Biden requested and obtained, in addition to the investments decided in Trump's time, another 1900 billion dollars. The total sum, in terms of additional public spending destined to fight the pandemic, is close to five trillion dollars, just under a quarter of the American national income. Adding to this expenditure, he has proposed the investment of two trillion dollars to reshape US infrastructure in the course of next eight years, considered the biggest public investment program after those realized by Johnson. This will be funded by high corporate taxes. The plan, according to an administration official, would “revitalize our national imagination” and put “ millions of Americans to work right now” . (Financial Times, “Biden to unveil $2tn projects and corporate tax rise”, 1 April, 2021).
Also considering just the US amount mobilized in reaction to the pandemic, the aggregate sum destined for Italy and Spain, with a total amount of citizens equivalent to a third of the population of the United States, is tenfold minor. The difference is evident. But this is not the most important aspect. The appropriations decided in the United States are part of an expenditure that has already been partially carried out, partly to be carried out in the coming months.
Instead, the allocation decided in Brussels concerns an amount that will be distributed over six years on the basis of the evaluation that the European Commission will give of the spending programs decided at national level. Expenses fundamentally conditioned by the scheme decided in Brussels: essentially, investments in climate and advanced technologies. The difference in results compared to the immediate and massive interventions decided in the rest of the world is sensational.
China, the first to be hit by the pandemic, will obtain an increase in national income of about 8 percent this year, the highest in many years. All other countries for which an adequate public intervention has been decided will return to pre-pandemic income between the current year and the beginning of the next. In the case of Italy, according to the government forecasts, we will have to wait until at least the end of 2023. In other words, it will mean the return to the income of 2007, already five points lower than at the beginning of the century. And this in a context of rising mass unemployment already higher of 10 percent and that reaches 20 percent in the South of Italy, the highest in the Eurozone.
There is no mystery in these trends of the crisis. While the pandemic has reduced national income by about ten percent, there is no other way to recover it than by relaunching public investments and those in support of private ones consistent with a general plan of economic recovery and increasing employment.
There is no doubt that Mario Draghi has placed, after eight years of experience in the management of the European Central Bank, an extraordinary competence in the monetary and financial field. Why doesn't he implement the needed economic measures coherently with the policies adopted in the economically advanced countries of the rest of the world? The argument of the rising public debt is not convincing.
Rising debt is inevitable and is what happens in all countries in the midst of a crisis. A public investment policy can in fact be favored in current circumstances by the extraordinary availability of inactive savings buried in the coffers of banks with interest rates close to zero if not negative, which remain unused. These are favorable circumstances for a major public investment plan intended to revive growth.
The only explanation for an unreasonable behavior is submission to the choices made by the European Commission with the support of Germany. A ruinous policy with incalculable economic and human damage destined to affect the fate of the eurozone.
Over the past decade, the euro area has experienced the lowest growth in national income and the highest average level of unemployment in the developed world. Sometimes crises serve to make us aware of past mistakes and to change direction decisively. It may be that radical change may occur in the coming months under the pressure of the disastrous effects of the pandemic and the inadequacy of the measures adopted and announced to limit its immediate and long-term consequences.
Politics is about recognizing mistakes and making necessary changes. The British example we referred to was a positive example of this. Change is always possible. But for now there is no evidence. Yet the experience of the last decade in the euro area of the lowest growth and the highest average unemployment among advanced countries, along with the growth of growing inequality and poverty should push any normal government in the direction of radical change.