Loss of GDP. The COVID-19 pandemic is having a major impact on economic, social and political decisions. Across the globe, developed and emerging economies alike are suffering huge decreases in GDP. The forecasts seemed optimistic for a rebound in the last few months of 2020 or in 2021, but the recessive impact of the pandemic and the consequences of the crisis are uncertain and could be long-term in nature.
Vulnerability of hyper-globalisation. The current crisis originates from simultaneous shocks in supply and demand, created by the freezing of economies due to lockdown and the emergency measures adopted. However, the depth and the long-term consequences of the pandemic also depend on the fact that the countries that have been hit particularly hard are the countries that are more integrated in terms of transnational supply chains.
Trade-off of “opening up economies vs. protectionism”. It would also be a risky reaction by countries to reduce global connections among economies, under the psychological pressure of the pandemic and in response to political arguments for achieving national self-sufficiency in the provision of essential goods. One of the positive effects of an interconnected world is the creation of global public positives, such as the fight against climate change and pollution, the diffusion of knowledge and education, scientific progress, human rights, the conquests of medicine and the global fight against endemic illnesses.
Explosion of Public Debt. Under the current conditions, a global explosion of public debt is very likely. In particular, governmental debts, which are already very high in most countries, risk growing larger, with foreseeable growing pressure on financial markets, to 2 cope with not only the current phase of economic emergency but also with the subsequent phase. Moreover, unlimited growth of these debts is probably not sustainable indefinitely. Three trends already existed pre-COVID-19: the retreat from hyper-globalisation, the relationship between market and government with a growing role of the latter, and a decreasing growth rate. The pandemic has likely been less of a game changer event than
a game accelerator event.
Expansive policies and international cooperation. International supply chains represent one of the greatest factors of uncertainty in the global recovery. The speed with which governments of all major countries are able to implement expansive fiscal and monetary measures will be crucial. Exiting the crisis will require maximum international cooperation of monetary policy among central banks in order to stabilise international financial markets and ensure liquidity for economies and governments worldwide. The role of the private sector in supporting interconnections on global value chains is also critical.
Monetisation of public debt. Sovereign debts are the main instruments that countries use to inject resources into the economy and stimulate productive recovery. One solution could be to channel monetary resources created by central banks towards financing specific pandemic mitigation measures and targeted public investment programmes. Monetisation of the additional investment expenditure would allow governments to contain the growth of their debts, including in the recovery phase. This direct monetary financing of public expenditure can be achieved in different ways.
We should channel monetary resources created by central banks towards financing specific pandemic mitigation measures and targeted public investment programs. Today it is no time to be afraid of a good debt, if governments have great determination and diligence. This is the rational of the Next Generation EU programme. In the case of the ECB, an instrument could be a form of temporary monetisation of the golden rule, through the purchase of irredeemable public securities issued to cover the actual expenditure incurred in implementing public investment programmes. We must promote multilateralism and international cooperation with the aim of creating sound macroeconomic policies for a more effective recovery strategy.
He is currently Professor of Political Economics at the University of Rome Tor Vergata, where he has been Dean in the Faculty of Economics since 2017. Over the years he has served as a senior advisor in various ministries (Economics and Finance, Foreign Affairs, Public Administration, Labor). From 2002 to 2006 and from 2009 to 2012 he served as member of the Board of Directors of the International Labour Organization (ILO). From 1 January 2010 to 15 March 2016, he was President of the National School of Administration. On 31 May 2018, Tria was selected as Minister of Economy and Finances.
University of Manchester
Professor of Financial Innovation
Julie Froud is a member of the Organisations and Society subject group in the People, Management and Organisations division of MBS.
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