Health crisis and economic and social disaster in the Eurozone
Luis Enrique Casais Padilla[1]
It is well known that one of the most visible consequences of the 2008 crisis was the cuts imposed on healthcare.As many as 56 countries, rich and poor, cut their budgets for this vital service. In the current global health crisis, governments in most major countries are abandoning budgetary discipline… except in the Eurozone.
While the United States Senate has just approved the largest economic rescue package in its history - two trillion dollars in aid to businesses and citizens - to deal with the enormous crisis unleashed by the coronavirus pandemic, the finance ministers of the Eurozone have agreed to propose to the European Council that the financial response to the Covid-19 catastrophe be for countries in need to resort to a loan from the European Stability Mechanism (ESM).
In response to the request from southern countries, with Italy and Spain leading the group, for the EU to mutualize responsibility for the enormous expenses that will have to be undertaken to avoid a serious economic crisis as soon as the health crisis ends, Germany and the Netherlands are once again imposing the ultraliberal ideology that will condemn southern EU countries to a recession even worse than the one experienced in the years following the 2008 crisis..
At the last meeting, the Dutch minister's remarks—"I see no circumstances in which the Netherlands could agree to the issuance of Coronabonds"—were described by his Portuguese counterpart as "repugnant, utterly reckless, and a recurring display of pettiness." Such language is rarely heard in sophisticated European diplomacy, which gives us some idea of what is at stake right now.
According to the northern countries, led by Germany and the Netherlands, the south should have saved more during the recent years of economic improvement. “If they had, they would now have the capacity to respond.” Therefore, if any country needs assistance, it will come in the form of a loan from the Rescue Fund; and, consequently, to access it, it will have to meet the same criteria. structural reforms that are at the epicenter of the deterioration of finances and health systems in southern countries.
What the northern European countries seem to forget is that the last crisis, resolved with the very mechanisms they are now proposing, placed Greece, Iceland, Portugal, Spain, and Italy among the top five OECD countries that cut healthcare spending the most. Healthcare spending in Spain is €3.300 per capita, half of what Germany spends, meaning Spain currently has 30,1 healthcare workers per 1.000 inhabitants, compared to 60 in France and the United Kingdom, or 71 in Germany.
Healthcare spending in European Union countries (% of GDP 2018)
This “agreement” will be an absolute blow to the millions of workers in southern Europe who will suffer a new terrible economic crisis imposed by the irrationality of the leaders of northern Europe.
The fact that the proposed "rescue" mechanism to activate the recovery of European economies is the ESM, as opposed to other alternatives proposed by most of the countries of the Union - the so-called Coronabonds - is not only inefficient, but also tremendously unfair at this critical moment.
The ESM is a financial institution created by the 17 member states of the eurozone in 2012 with the aim of providing financial assistance through loans to governments in need. The problem lies in the fact that the government requesting it is asking for a “bailout,” which must be approved by the European Commission (EC) and the European Central Bank (ECB); and to access the funds, it must accept a Memorandum of Understanding (MoU) which imposes on the country a series of mandatory conditions in economic and fiscal policy, as a result of the cuts applied in health, education, public employment, etc.
The blow being dealt by the economic standstill associated with the health emergency is going to be exorbitant, with investment banks predicting the biggest GDP falls for the European Union since World War II. Therefore, the central objective should be that once the health crisis is over, the economic and social machinery is set in motion at full speed to achieve a V-shaped recovery (fall and rapid recovery), as opposed to a U-shaped one (fall, stagnation and recovery) or, if things are not done well, an L-shaped one (fall and stagnation).
In this context, why is the northern Eurozone condemning the southern countries of the Union to U-shaped or L-shaped recessions by refusing to mutualize the enormous expenses that will necessarily have to be incurred to revive the economy, as the United States is going to do?
Although the pandemic is global, the economic structure of each member country of the Union has a significant influence on the speed at which they can recover from the economic standstill associated with the health crisis.
Most analysts agree that, once the health crisis is over, industry will be the engine of a rapid recovery. In this context, the industrialized north is confident that once the health crisis has passed, they will be able to restart their production machinery at full speed and quickly overcome the economic crisis resulting from the forced shutdown caused by the health crisis. As an example, Germany's industrial GDP represents 21% of its total GDP, compared to Spain's at only 12,6%.
Regarding the weight of industry in relation to GDP, Spain is well below the European average and its decline has been constant since the 80s when its dismantling was imposed as a necessary condition to enter the then European Economic Community; and this was accelerated after the Maastricht Treaty, since with the Single Currency impossible conditions were imposed for the development of industry in the most backward countries of the Union.
While the European Commission has insisted for years on creating specific plans for the industrial sector to reach 20% of the EU's GDP, in the current status quo Such large-scale development is impossible within the Eurozone. And the industrialized northern countries have no interest in losing either their privileges or their trade surpluses by industrially developing their southern partners.
On the other hand, France, Spain, and Italy are the first, second, and fifth largest recipients of international tourists in the world, with 89, 83, and 62 million visitors annually; and countries like Greece and Portugal—with 30 and 23 million tourists, respectively—depend even more heavily on the tourism industry to balance their payments; especially Greece, given the precarious state of its economy, a direct result of the bailout policies imposed in 2012 using the same mechanisms that are now being considered for reintroduction. solidarity Eurozone.
The tourism sector is one of the hardest hit. Worse, unlike other industries, it will not recover once the state of emergency is lifted. Given the novel and unpredictable nature of the disease, it is estimated that it could resurge, so governments will seek to mitigate the situation by imposing measures to prevent a new health crisis, for example, avoiding large gatherings (conferences, concerts, crowded beaches), maintaining social distancing, etc. In China, they are already implementing social distancing rules such as not traveling to affected countries and requiring a 14-day quarantine for anyone arriving from abroad.
It is obvious that if a tourist is going to have to be confined for 14 days, they simply will not travel; furthermore, governments recommended against traveling to Spain, Italy, etc., because in this way they not only ensure the health of their citizens, but also facilitate the recovery of their own economy by avoiding the tourist spending that is carried out annually outside their borders.
When Spain, Italy, and other countries enter this phase, they will not quickly return to normal. In the case of Spain, the 83 million travelers who spent €92.278 billion last year will not be there; and therefore, by the end of the year, 12% of GDP and 13% of direct employment from 2019 will not have been generated. This impact will be felt to a greater or lesser degree by each and every one of the southern European countries. We are talking about a complete standstill in the tourism, holiday, and business sectors, which in the case of the aforementioned countries will mean an even worse crisis than that of 2008, given the lack of economic stimulus measures that the rest of the world will implement.
As things stand, the only chance for Southern Europe to experience a V-shaped recovery—or at least a U-shaped one—is the development of effective treatments and vaccines against the coronavirus. That's neither easy nor quick. So, our Eurozone "partners" are condemning us to misery.
Given the lack of solidarity and intransigence of EU leaders who impose these demonstrably ineffective rules, perhaps now is the time for southern countries to establish a common front to prevent the 2020s from becoming a Lost Decade.
The danger that millions of workers and families in southern countries will face far more extreme situations than those recently experienced demands decisive action and the implementation of strong solutions. If northern countries persist in maintaining their self-serving ideology to preserve their privileges, it is probably time to leave the Eurozone.
Only outside of this useless straitjacket will the different European countries be able to find a sustainable and balanced development model that allows for the social development and productive forces in Europe.
[1] Spain. Member of the Working Group on Crisis and the World Economy. Honorary Collaborating Professor at the Complutense University of Madrid. Article published in No. 42 of the Bulletin "Our America XXI – Challenges and Alternatives", an initiative of the CLACSO Working Group on Crisis and the World Economy.
[+] Thinking about the pandemic
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