The fight undertaken by countries against the coronavirus is more difficult and costly in human lives than anything imagined. The resources required to equip health services go beyond all expectations and the necessary confinement of people to overcome the epidemic is leading to a very heavy economic recession.
Mutual aid, which inspires the action of health workers, public servants and citizens in key positions, is the main guide for action within States and in relations with other countries. As the economy is organized, overcoming the crisis in European countries absolutely depends on the decisions taken by the European Union. It will take a lot of money and a lot of solidarity to provide health services and prevent the destruction of companies and jobs.
On March 18, the European Central Bank (ECB) made 750 billion euros available to states and companies to acquire public and private debt. This unprecedented intervention relaxed tensions in financial markets, which had begun to dangerously spike the cost of debt in several countries. Italy and Spain saw financing costs as 3% and 1.5%, respectively, more expensive than in Germany. After the intervention, the differences were reduced to 2% and 1%, respectively.
Only momentary relief had been achieved. Italy and Spain, the countries hardest hit by the pandemic and with a debt of 135% and 100% of GDP, respectively, need more support. The ECB’s monetary policy is insufficient. The central bank is already heavily loaded with Italian debt and has little margin to acquire more.
Fiscal policy is required. In the previous crisis, the European Stability Mechanism (ESM) was created, of which 410,000 million euros are available. Using these resources would allow countries in need to be financed at a cost of 0.1%. These cost differences in a limit situation are vital. Not yet decided. But given the dimensions of the tragedy this is also insufficient.
It is urgent that Germany and the rest of the northern countries assume that the EU must create eurobonds, which involves sharing risks, in order to finance the most fragile nations at the lowest cost. The seriousness of the situation has been pointed out by the Italian Prime Minister, Giuseppe Conte, and the Governor of the Bank of Spain, Pablo Hernández de Cos. Conte calls for the ESM, the European rescue mechanism, to open lines of credit to help all states fight the consequences of the coronavirus. The governor has demanded, for his part, the creation of new tools, among which priority must be given “to those that reinforce the ability to share the states’ budgetary risk.” And he remembers that “the principle of solidarity on which the European project was founded must be valued.”
Without mutual help there is no Europe. Former Italian Prime Minister Mario Monti has warned German Chancellor Angela Merkel in the Corriere della sera, who “may have to choose between the birth of Eurobonds or letting the ECB die”.