BBC – Fergus Nicoll: There is a fear that this crisis could pose an existential threat to the EU. I asked the Rome-based economist Michele Geraci, until recently undersecretary for Economic Development in Mr Conte’s government whether this EU stimulus package is the answer to the fear
Prof Geraci: I do not think so. I agree with the Mr. Conte that this is the time when the EU needs to prove its effectiveness, but unfortunately what happened yesterday at the Eurogroup actually proves the opposite. First of all, the lack of speed that the EU works with and we need immediate measures; we already have discussion for three weeks. Then going on to the substance, this deal really does not bring any money to Italian workers or Italian companies that is not just a simple loan that countries can do by themselves without the need of the EU. When the EU wants to prove its value, it needs to do something that, without it, it could not be done; and in yesterday package there is nothing the individual governments, individual banks cannot do by themselves.
BBC – Fergus Nicoll: What kind of thing would make a unique proposition
Prof Geraci: It would have been the Eurobonds. We talked about solidarity, and yes it would have meant that stronger countries would have had to subsidize weaker countries; and when I say stronger and weaker, I mean both economically and also maybe less hit by the virus. That is really the only thing that the EU could have done
BBC – Fergus Nicoll: Just explain for listeners, Michaele, if you would, who may not understand the concept of the corona bonds. what difference would they have made?
Prof Geraci: The corona bond would have been a bond issued at the Eurozone level, guaranteed, let us say jointly, by all the members countries, not to by individual countries. And because in the Europe we have countries that have better access to financial markets, say like Germany, that pay a lower cost of borrowing, and countries like Italy Greece that pay a higher cost, if countries go individually, Italy will have to finance itself at the higher while Germany can do that at a lower rate. However, with the Coronabond, putting all these resources together, Italy and Germany would have together issued a bond at a cost that would have been halfway. And that means in a way that Germany and Holland would have probably financed and subsidized Italy’s borrowing. But of course, in order to do that, you first need to develop a sense of a solidarity amongst the people which is not there yet.
The other important thing that we do not talk about it, is what do we do with the money. Because we only have half of the equation on the plate – how much do with raise, where do we raise it from and who finances it. But very little has been said about what to do with the money. And this is really the important thing. we do need an industrial plan a development plan to rescue citizens, self-employed people, companies and we have none of that, at least not in Italy. Therefore, I do understand the reluctance of Northern European countries to say “well we would probably be happy to subsidize you but you need to tell us exactly what you’re going to do with the money”. And we in Italy, have completely failed at putting on the table a credible investment plan.
BBC – Fergus Nicoll: It does seem a tragedy though that those who are opposed to the bond scheme, for example, use words like blackmail and I wonder what do you think the collective capacity to do good mutually is defeated by nationalism quite simply at this point
Prof Geraci: it is! And the paradox is the nationalist view the emerges in every single country. I say, Holland a country which is a friend of Italy, of course, the government is not a nationalist but the current government cannot rationally give way to subsidize to what they perceive as southern European countries with less effective fiscal discipline, because that would give voices to their own internal, let’s say populist nationalist parties. So, the paradox is that the Dutch government needs to protect its own Dutch interest. If I may do an analogy, it’s like on the plane, when there is a depressurisation, people must first put on their own masks and then help other people. And that’s exactly how governments should work
BBC – Fergus Nicoll: Thanks to Michele Geraci, speaking from Rome