Young parents must surely be familiar with trying to explain to their toddlers the importance of eating healthy food enriched with vegetables. Since most children do not like vegetables, mums usually try to instil some excitement in kids’ meals by adding alphabet pasta in vegetable soups.
Economists are increasingly resorting to alphabet soup economics to explain to non-professionals how they see the post-COVID recovery evolving.
There is, of course, no agreed opinion on what the recovery in different countries will look like. Will we see a V-, W-, U- or L-shaped recovery? The short answer is that no one really knows. Economic models are as good as the assumptions they are built on. But the premises are changing all the time. As the pandemic evolves it affects different countries in different ways.
Relying on financial markets signals can be more confusing than helpful to understand where different economies are heading. A relatively insignificant medical news can boost share prices by three or four percentage points, while an equally trivial political comment by the US president will depress equity markets disproportionately.
The shape of recovery will depend on several questions: what a country is good at, who it trades with, whether infections are rising or falling, and the fiscal and monetary policy responses. Even if a vaccine is launched before the year end, there will continue to be doubts on the extent of its effectiveness to stop the infection spread.
While most businesses are re-opening it seems that consumer confidence is still weak. Whether you bet on the Vs, Ws, Us or Ls version of recovery forecasts, even the near future looks frustratingly blurred.
Ayhan Kose, a senior World Bank forecaster, says that: “Let’s make no mistake about the shape of the recovery. It is going to be a painful one.”
Our political cheerleaders will try to convince us that we will soon be back to where we were a few months ago. But are we sure we want to be in this pre-pandemic nirvana?
I fret about the recovery in the EU. The restructuring in the Union’s more significant economies moves at a sluggish pace. The two leaders I see with some vision for the future of Europe, Emmanuel Macron and Angela Merkel, may be out of the scene in a few months or years.
Italian politicians continue to argue about whether they should use the European Stability Mechanism loans to help restructure their economy. The conditions tied to such borrowing are linked to stringent requirements that will be difficult to sell to a depressed electorate that has lost faith in traditional politicians and want to give a chance to the populists.
The direction that the US will take following the presidential elections in November will determine whether the world will roll back globalisation and encourage the fragmentation of global alliances in defence and trade. There is a limit as to how long emergency central bank interventions and fiscal measures can avoid a global depression.
The pandemic will be with us for some time. Governments will have to take stock regularly to stimulate economic recovery. But governments cannot manage limitless budgets forever. Nor can central banks print money endlessly. The economic alphabet soup is unlikely to illuminate us on how our future will look like.
The countries that will be the first to exit this crisis will be those that invest in the critical success factors of any economy. Investing in people means more than just creating low-paid jobs that leave a significant proportion of the community with little or no hope about moving up the social ladder. The quality of a country’s educational system is perhaps the single most crucial factor that determines the quality of life of people.
An efficient system of government that gives the best value for money to its citizens should provide quality health services for all. It should rely on training its young people to become medical professionals to support this service rather than resort to social dumping by importing low-paid paramedical staff from low-cost counties.
The quality of public services, respect for the rule of law, enforcement of fiscal rectitude, protection of the urban and rural environment are some of the hallmarks of a progressive country that can recover quickly from any economic challenge.
I see little evidence of any EU country scoring highly on all these criteria of excellence. The future of the EU will depend on how capable our political leaders are in bringing about the necessary change.