While the global coronavirus crisis is challenging economic principles, Aurore Lalucq, French economist and member of the S&D group in the European Parliament, commented for EUROPE on the economic measures announced by several European institutions, stressing the need for deep systemic changes [Interviewed by Damien Genicot].
Agence Europe – What do you think of the massive securities repurchase operation worth €750 billion decided by the European Central Bank (ECB) (see EUROPE 12450/6)?
Aurore Lalucq – It was the right thing to do. Especially after its communication from 12 March, which was a complete blunder in economic and financial terms [Editor’s note: ECB President Christine Lagarde said it was not the role of the monetary institute to reduce interest rate spreads on sovereign securities (see EUROPE 12445/1)].
However, this support will not be enough. Member States must take over.
Moreover, the crisis is not the same as in 2008. It is not a question of reviving economic activity, since we must remain confined to our homes, but of establishing social protection so that everyone can continue to receive their wages.
So it’s a question of cushioning the shock on the economy?
For the moment, the important thing is to prioritise in order to ensure that everyone has a standard of living that is assured and that the strategic sectors (health, food, etc.) can continue to function. The other sectors must be put on the back burner and the economic recovery will come later.
As regards the ECB’s buy-back policy, it will be necessary to prevent it from fuelling speculation or the carbon sectors, as happened after the last crisis.
How can we avoid it?
Over the past 10 years, monetary policy has been extremely accommodative, but we have not seen a massive boost to investment. The channel for transmitting money from the ECB to the banks and then to businesses and households is more or less blocked. We do not have time to lose. Let’s change the connection instead.
I therefore think that we need to have a debate at European level on the possibility of the ECB directly financing part of the States. This would secure the money transmission channel, re-establish the link between monetary and fiscal policy, and prevent future sovereign debt crises.
But, unlike the US Federal Reserve, the ECB does not have the power to directly fund the states...
It also did not really have the power to do quantitative easing. Not complying with the Stability and Growth Pact was not normally possible either.
If we really want to protect European citizens and prevent the euro area from imploding, we may have to break certain rules in the short and medium term.
In economics, there are basically two instruments available: monetary policy and fiscal policy. We refused to use them for years. As a matter of dogma.
This crisis is forcing States to become pragmatic again and to put political objectives before certain economic assumptions that had no real economic basis.
The Commission has just proposed to the Member States that they free themselves from fiscal rules. Doesn’t this show some flexibility on the part of the Pact?
The Pact has always offered some form of flexibility... but on a country-by-country basis. What happens when Germany and France decide not to respect it? Nothing. When it’s another country, the story is quite different. Hence the need to revise this Pact in order, firstly, to ensure that this reform is fair and benefits all European countries and, secondly, that it enables us to prepare for the post-crisis period and the Green New Deal.
We need to get back to a common sense economy. The Stability Pact does not fall into this category, but into that of neo-liberal obscurantism.
Do you think that this pandemic will go so far as to call into question the race for growth?
I hope so. We are coming to realise that the priority is not GDP growth, but social, health and environmental issues. The current situation has to trigger something. Especially since there is a very clear link between the proliferation of epidemics and environmental degradation.
However, this crisis demonstrates that the State can act, including through standards and regulation. But that takes political courage.
Now that the situation is there, drawing all the political, economic, social and environmental lessons from it is the only way we can get out on top and change our way of producing, consuming, living and returning to something less demented.
Will this depend mainly on the reaction of the Member States?
Especially France and Germany, because they are the ones who set the pace.
We are witnessing an ideological breakthrough today. Neoliberalism was dead. It lingered only in certain policies. What is terrible is that this awareness is coming through a health crisis... a crisis that is leading to deaths.
Just a few weeks ago, I was still fighting in the European Parliament for flexibility on the budgetary process of the ‘European Semester’ (see EUROPE 12439/15). Now we are talking about public spending, flexibility in the Pact, monetary policy, nationalisation and even de-globalisation.
The role of the State and the need for national reserves and production capacity are being rediscovered. We’re getting out of the ideology of just-in-time. 3 weeks ago, these things were unimaginable in Europe.
Let us hope that there will also be an breakthrough with regard to solidarity amongst the Member States, so that no country is allowed to go under. There are plenty of things to do, such as mobilising the European Stability Mechanism, lifting the taboo on Eurobonds and, perhaps one day, daring to tackle the problem of surpluses within the euro area.
The pandemic gives us an obligation and responsibility to change the economic system profoundly. Once the health crisis is over, it will be time to implement something new, because the coronavirus proves to us that neoliberalism is not compatible with an environment of climate change.