Opinion piece

How to minimise the impact of the coronavirus on the economy

COVID-19 is a global killer. Austerity needs to succumb.

Publishing date
02 December 2020

This opinion was published as part of an interview with POLITICO where they asked six experts what governments can do to mitigate the economic fallout from the virus.


Ditch austerity

COVID-19 is a global killer. Austerity needs to succumb.

As long as governments are willing to find the money to backstop their economies, Europe has a chance at containing economic damage while the medical threat is front and centre. If, however, old fears about inflation and the general evils of high debt come back to the fore, the EU risks cutting its own lifeline.

We know the virus doesn’t respect borders. It would be a pity if politicians used European negotiating venues to seek limits on their peers, rather than creating conditions in which all can prosper.

Global markets have shown that they are willing to invest in high-quality European debt. Meanwhile, inflation has fallen so low that more of it would be good for the economy, not a danger. While it’s possible to conceive of a time when those two conditions aren’t baked into the outlook, it’s not a near-term threat in the way that anti-borrowing philosophies might be.

The European Central Bank has so far been able to stand firm in its commitment to support the economy and lift inflation back up to target. Politicians need to support this effort and independently pursue fiscal paths that, as the ECB’s Isabel Schnabel said, serve as a complement to what monetary policy can offer.

Racism and xenophobia are the other big accelerators to worry about. Voters in the developed world have a disconcerting history of limiting social welfare when their nativist fears are triggered. Policymakers who want a healthy population and a healthy economy need to make sure they are creating conditions for the health of all of their citizens, not just the white ones.

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