“Without solidarity to Italy and a common economic response to the coronavirus crisis, the European project will die. For this reason, the eurobonds are essential and governments that don’t realise that are living in another world,” Paul De Grauwe, Professor of European Political Economy at the London School of Economics says in an interview to ANSA.
“If I were Italian and if I would see the lack of solidarity from other member states of the European Union, I would question the EU membership,” he continued. “The idea of the euro ‘hawks’ (Netherlands, Germany and the majority of Northern European countries)) to keep all the conditions to use the European Stability Mechanism (ESM) is terrible,” he also added.
In an earlier op-ed in The Project Syndicate, he also wrote:
Having witnessed the 2008 financial crisis and the subsequent eurozone debt crisis, Europe’s policymakers should already realize what the COVID-19 pandemic could mean for the economy. To avert a self-perpetuating downward spiral, the European Central Bank, in particular, will need to start thinking outside the box.
National governments must intervene on a massive scale to provide financial support for distressed companies and households whose earnings are at risk. Most European governments already seem to be willing to do this. The problem is that large-scale fiscal expansions by eurozone member states could prove tricky. It is thus critical that the European Central Bank step in to prevent the last domino – member-state governments – from falling.
Because they have no choice but to support failing companies, illiquid banks, and struggling households, national governments could be entering dangerous territory. The more their debt increases, the greater the risk that their bondholders will panic, as we saw during the 2010-2012 sovereign debt crisis. And the countries experiencing the largest debt increase as a result of the “coronacrisis” – Italy, Spain, and France – are among the four largest eurozone economies. To head off the risk of a bond-market panic, the ECB should be preparing to buy up distressed governments’ bonds.
As a legal matter, the Treaty on the Functioning of the European Union forbids the ECB from engaging in monetary financing of national budget deficits. But ECB lawyers, with their unbounded ingenuity, could surely find a way around this restriction. After all, the very future of the eurozone depends on it.Column by Paul De Grauwe on The Project Syndicate, 18 March 2020