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Coronavirus Means Zero Hour for the European Union

Se la Banca Centrale Europea non corre in aiuto dei Paesi della periferia europea indeboliti dalla pandemia di coronavirus, tutta l’Eurozona potrebbe crollare. Dal sito dell’”Institute for New Economic Thinking”

In old Rome, debts were to be settled by the Ides of March – March 15. In Italy this year, as that legendary day of reckoning approached, questions about repayment obligations weighed on the minds of decision makers in the Eternal City.

In February, the European Commission issued another of its periodic warnings about Italy’s towering debt to GDP ratio – at 140%, after Greece, the second highest in the Eurozone. For a country that must go to markets to refinance a fifth of its obligations every year, the public admonition was awkward. But soon the swift and terrifying advance of COVID-19 across the historic towns of northern Italy brought new and much deadlier pressures. As emergency quarantines put out the lights in the piazzas and factories of one town after another in Italy’s industrial heartland, the economy ground to a halt and tax collections plummeted.

Italy’s fragile governing coalition now faces staggering budget challenges. A country already groaning under the weight of older debts now has to pile on still more liabilities to keep its people alive and to prevent sputtering businesses from collapsing.

A long time ago, Brutus and his accomplices delivered the “unkindest cut of all” to Julius Caesar on the Ides of March: In 2020, it came three days earlier. With markets in Europe and the rest of the world in free fall, Christine Lagarde, the new but very experienced President of the European Central Bank (ECB), emerged to sum up what the bank’s board had just decided to do. Anxious investors looked forward to reassurance in the style of Mario Draghi’s famous “whatever it takes” promise that had soothed turbulent markets back in 2012, when the Eurozone looked to be coming apart.

Lagarde did outline a series of measures to ease “liquidity” and encourage banks to lend. But then she added a remark that echoed around the world, declaring that the ECB “is not here to close spreads.”

Everyone grasped the implication: Italy, and perhaps other Eurozone countries facing similarly severe budget challenges down the road, had to watch out. They could not count on the ECB to hold down their funding costs.

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