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Kempen's Commentary: After the economic contagion

01 May 2020


After the economic contagion

Mark Rutte, Emmanuel Macron, Angela Merkel, Giuseppe Conte: they all regularly fight about the role of Europe in the economic relaunch. Especially in finance. Not everyone has the same concept of a common Europe.

What they do have in common is their skyrocketing national popularity, often with tens of  percentage points. In difficult and uncertain times, European citizens apparently seek guidance from their leaders. This phenomenon is not exceptional in wartime, even if I hesitate to use this terminology. Anyway, this gives one an idea of the situation.

Budget policy
In the meantime, the aforementioned policy makers are doing their utmost to counter the eco-nomic impact of the new coronavirus with broad budget policy. Where it has been up to the central bankers since 2012, it’s now up to the policy makers to take their ‘whatever-it-takes’ moment. In the euro zone, the 3% standard has been relegated to a dark corner somewhere in the attic. The ECB’s nuclear firepower prevents financial markets from punishing this. Exceptional situations require exceptional measures.

The question is, however, what all this could mean for the slightly longer term. For example, will it be politically feasible to switch back to a situation in which we will be repaying debts instead of  taking on debts? Like what happened after the euro crisis? Chances are that this will be difficult. Partly maybe because of political expediency. A popular politician usually wants to prolong his or her status.

The labour factor
In addition, there is the displeased voice of the social professions we’ve been hearing for a while now. They are in the spotlights today and possibly for some time to come. It’s the voice of the labour factor. A social climate was already brewing in which this factor tried to regain the ground it had lost to the capital factor for years. The yellow vests movement is an anecdotal illustration of this.

The state
Another question is whether the role of the state is back? In the 1980s, Ronald Reagan and Margaret Thatcher started unscrewing the legs under that role. The free market should not be obstructed in any way. That free market, however, was getting its stuff from all over the world, even China. Refrigerators and gadgets, but also vital products such as medicines. There is a real chance that governments will limit this business logic because of the ‘higher interest’. In all kinds of sectors. Businesses themselves may also critically examine the vulnerability and resilience of their interna-tional supply chains.

Anyway, within our own house we like to think in scenarios. One scenario is that of deglobalisation and a more prominent presence of the government. Whether we will indeed go that way depends, among other things, on future (political) choices. But the new coronavirus seems to at least accelerate some of the trends from this scenario.

The author

Luc Aben

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