[FR] Coronavirus financial crash and political crash

The most astonishing thing about the historic stock market crash that marked the week of 9 March 2020 is that it did not happen sooner. COVID-19 appeared in China at the end of December 2019, with the epidemic peaking in Wuhan, forcing the lockdown of this city of more than 15 million inhabitants in January 2020. Italy became the first hotspot outside China in February, yet nothing happened on the markets until mid-March. Yet everyone knows that China accounts for 15% of global GDP and 10% of global imports, and that its imports drive growth throughout the West and beyond. But the crash did not occur until March, and even then it was due to a combination of the virus and an oil price crisis triggered by OPEC.

Why such a delay? The markets were in a state of shock. For three months, no one believed it or wanted to believe it: the end of globalisation was unthinkable. Yet this disaster scenario had been duly anticipated in global strategic thinking, notably in the French White Paper on Defence, as one of the ‘black swans’ that could destroy global stability: an event whose occurrence is extremely unlikely, but whose impact would be infinitely catastrophic. Pandemics are among these, along with nuclear terrorism and major natural disasters. The ‘black swan’ was theoretically possible, but practically unthinkable. Hence the panic when it became obvious.
For a decade now, the liberal economy that fuels globalisation has known that it must adapt: global warming has led modern capitalism to begin its great transition towards greener production, changing consumption patterns and investing in more sustainable and responsible technologies. All economic actors, starting with large companies, had finally accepted this structural transformation of the global economy, even internalising it as a new source of profit, with the end of the century as the horizon. However, the coronavirus has disrupted this relatively manageable timetable: it confronts the global economy with an immediate, urgent and brutal transition, without preparation or anticipation of the possible effects of the measures implemented. Hence the added panic. And perhaps the climate emergency will bear the brunt of this global health emergency.

We had already gone through different phases of globalisation: the happy one of the 1990s, then the painful one from 2008 onwards, and then the crisis of globalisation since the election of Donald Trump in 2016. Today, we are entering a phase of catastrophic globalisation. Interdependence is indeed a tremendous asset for reducing production costs and boosting global wealth. But its dark side is just as powerful: the interdependence of crises is as rapid as that of markets. We already sensed this ten years ago, with the emergence of the H1N1 virus in Mexico. We are seeing this brutally confirmed with Covid-19. This does not mean that we should now despise market interdependence and return to autarkic economies after the crisis. But the apostles of economic liberalism cannot fail to learn lessons from this major crisis.

The other crash is political and concerns the European Union. The EU now finds itself in a state of health and economic emergency, and its lack of preparation, powerlessness and reluctance are staggering. Admittedly, health is not one of the Union’s areas of competence: Member States have always wanted to retain their sovereignty over a policy which, unlike agriculture or trade, can involve a risk of death for citizens, as in the case of defence. So, in its defence, the EU is not on the front line of managing a health crisis. But that does not mean it is without resources or responsibility. Yet since the beginning of the crisis, the institutions have been procrastinating: ‘we must wait’, ‘we are monitoring the situation’, etc. These have been the responses of European Commission and Parliament officials for the past three months.

When they finally do take action, the EU’s responses are weak: the Commission first announced the creation of a €25 billion fund (later increased to €37 billion) to help businesses, but this is a drop in the ocean compared to what is needed: Italy alone has mobilised €25 billion! Ursula von der Leyen also announced greater flexibility on state aid to businesses, when we would have hoped for a response commensurate with the challenge: the outright suspension of the Stability and Growth Pact for as long as necessary. As for the ECB, it has not announced anything decisive, no cut in key interest rates, thus causing the second stock market crash of the week of 8 March: in France, there was a historic fall of -12.28% in 24 hours.

It is therefore the states, left to their own devices, that are in control. And the states are acting in a disorganised manner, depending on the urgency of their domestic situation and the level of their means of prevention and response. Angela Merkel has abandoned fiscal discipline. Slovenia and the Czech Republic are closing their borders, France is not. Germany and France are requisitioning all production and distribution of surgical masks, while Italy is sourcing them from China, etc.
What lessons can be learned from this first, failed phase of the European strategy? At least two stand out. The first concerns solidarity: sharing only works well in times of abundance. In times of scarcity, it is every man for himself that prevails. In other words, in order to anticipate future pandemic crises, Europe needs to build up considerable stocks of medical equipment, medicines and other vaccines: a kind of European Health Bank (EHB), available to all when the next crisis strikes.
The second lesson concerns the future of the EU itself. Since 2008, Europe has been battered by a succession of external crises on the continent: the economic crisis of 2008, the refugee crisis of 2015, and now the Covid-19 crisis. The current health crisis coincides with a new refugee crisis, potentially involving refugees from Turkey. While the euro bailout made it possible to build a collective European response, albeit one that was austere and brutal for the populations concerned, the scenario today is completely different: when it comes to refugees and the virus, national reflexes are winning out over European ones. How far will this go? Will it be possible, at the end of the epidemic, to return to the rules of the stability pact? To extol the virtues of liberalism, interdependence, globalisation and austerity as the only conditions for general prosperity? European leaders should think twice about this.