We are indeed living in extraordinary times. We cannot say that we have never been through times like these. However, the crisis caused by the coronavirus from the health perspective is one that we have not experienced for decades. This is now causing an economic crisis which finds few other parallels. As such, the response to it needs to be extraordinary.
There are new developments every day, both in Malta and in other countries. Even countries that at first seemed cynical as to how real the threat posed by the virus was, are now facing reality. As in previous weeks, when I wrote about Covid-19, my perspective is simply economic, even though I admit that the health issue takes precedence.
Covid-19 is recognised as being the worst pandemic in a century. The difference is that a century ago we were not as interdependent, from an economic perspective, as we are today. At that time, tourism was a very small part of any economy. International trade was practically in its infancy. And financial markets were still operating within national boundaries as the movement of capital across borders was nearly inexistent.
Given the economic interdependence we have today, governments need to pull together. No country can address the economic impact of coronavirus alone. However, governments first need to realise this, as during the last years, we have had a number of cases where governments had decided to ditch multilateralism and seek to go it alone.
The EU will suspend the rules of the Growth and Stability Pact which limit fiscal deficits, and those rules related to state aid
What is worse is that this unilateralism seemed to be paying off, especially after the truce in the US – China tariff war. Production and employment were rising. Consumer confidence was strong. Financial markets were performing well, and the value of assets was rising. Analysts were not expecting any spectacular growth in 2020, but growth was still expected in the world’s leading economies.
Two and a half months into the year and the world is heading into an economic recession, affecting all countries and all economic sectors. Financial markets have experienced very significant losses in the last two weeks. Investors seem to be panicking. Consumers are starting to experience a decrease in their purchasing power as economic activity has slowed down. Common daily activities, such as shopping, eating out, watching a film, going to a concert or a football match, have practically stopped.
This has spurred some of the world leaders to do something about the economy. In effect they are pulling all the stops because these are extraordinary times. A few examples illustrate the mood and attitude of governments. New Zealand has approved an economic stimulus package that is estimated to be worth four per cent of that country’s gross domestic product. Germany’s Chancellor Angela Merkel, has suggested that the country should break the rule it imposed on itself of having a balanced budget.
US President Donald Trump, has stated that he wants a package of $850 billion “to stave off economic destruction from the coronavirus pandemic”. The Federal Reserve of the United States has cut interest rates bringing them down towards zero. The European Central Bank did not announce any interest rate cuts but has announced a programme of asset purchasing amounting to €120 billion.
Most significant of all was the statement of Ursula van der Leyen, the President of the European Commission, that the EU will suspend the rules of the Growth and Stability Pact which limit fiscal deficits, and those rules related to state aid. It was her “whatever it takes” statement showing her willingness to support the EU economy against the impact of Covid-19, irrespective of the cost.
These are all extraordinary measures which show that, across the globe, governments are doing all they can to combat the negative economic effects of the virus. They are seeking to help both families and businesses. We are indeed living in extraordinary times which require such extraordinary measures. These measures are more likely to have their desired effect if countries act in unison, rather than independently of each other.