‘EMU is at risk from coronavirus’
Economist Luigi Buttiglione speaks about the public health, financial and economic crises
Leading Italian economist Luigi Buttiglione recently spoke to Kathimerini about the public health crisis and the corresponding financial and economic crises. Following his tenure as senior economist at the Research Department of Banca d’Italia (19892000), he has achieved an impressive career in the global financial sector. Among other positions, he has held that of senior economist at Deutsche Bank AG and head of European and Global Economics at Barclays Capital Securities Limited. Also he has taken up prominent positions at leading investment and asset management companies including BlueCrest Asset Management, Rubicon Fund Management, Fortress and Brevan Howard. Buttiglione is the founder of consultancy company LB-Macro.
Indeed the Economic and Monetary Union is at risk from the coronavirus due to the very steep extent of the recession ahead – well more pronounced than the 2009 crisis in my view – and the fragility of the EMU and EU institutional setup, where the ECB is de facto the only common game in town, and the lack of mutual fiscal help and bond issuance.
whatever-it-takes is a necessary but far from sufficient condition to keep the euro steady at a time when both GDP and public budgets are poised to contract at a double-digit pace,’ says Italian economist Luigi Buttiglione.
The monetary whatever-it-takes is a necessary but far from sufficient condition to keep the euro steady at a time when both GDP and public budgets are poised to contract at a double-digit pace. I would support both helicopter money – not least because it deals with inequality, unlike the current kind of QE – and large infrastructure spending programs. However, I think that they are both unlikely, the former even more than the latter, as they would be equivalent to fiscal transfers across countries, which is seen as a no-no by Nordic countries.
Of course, but we should not forget the nationality of George Marshall – he was American – and the views that he held, which were very different from the prevailing visions behind the current European project, which is so only in name.
The ECB should act as a central bank, and a central bank is indeed a lender of last resort, by definition. But the ECB does not behave that way, even after launching a larger QE program. Moreover, and importantly, the ECB is now being run by a president – Christine Lagarde – who has lost all credibility with financial markets and, even more importantly, with the European people. Draghi is only a memory, and it is clear to everybody that the latest 1-trillion-euro QE program was launched only thanks to the insistence of other ECB Board members who have made the central bank their profession rather than a social occasion. As we said before, massive, shared fiscal programs financed with money are the only way out in the presence of such a large economic shock and the inefficacy of other instruments.
Certainly, yes, but as we can see, especially within Europe, collaboration is scant: Italy had to ask China for protective masks, as, at least initially, both Germany and France refused to provide any help and prevented exports of medical equipment.
‘Massive, shared fiscal programs financed with money are the only way out in the presence of such a large economic shock and the inefficacy of other instruments’
I think a lockdown is the only medicine, albeit very bitter, as shown by the Chinese experience. The deterioration of debt sustainability is an inevitable consequence, which is why a common monetary and fiscal policy response is a necessity.