Now, first of all let me make some things clear. I’m not an economist, but a historian who studied economic history. And that is very different from being an economist.
As historians we are trained to look at things from the viewpoint of long stretches of time.
While politicians scramble to come up with knee-jerk reactions which are also acceptable to the public, historians have the privilege to sit back and analyse matters in depth and in this way, I have the privilege to write things which may not necessarily go down well with the public or anyone at all for that matter.
Secondly, I’m not here as a prophet of doom. I sincerely hope that in everything I say, I will be proved wrong. History can help us understand what is going on, but it can also help us understand the probabilities of the future. I will share with you what I see as a historian and try to provide the probabilities of the future, in the briefest way possible.
So, in order to be brief and simple as possible I will say very clearly that things look very ugly for Europe.
This is not an economic crisis like any other and it is, without any shadow of a doubt, the biggest crisis we have experienced so far in our lifetime, and may probably have adverse political, economic and social impacts that exceed those of even the 1930s Great Depression.
Since the 2008 economic crisis, both the Federal Reserve and the European Central Bank addressed the economic crisis by injecting more liquidity into the financial system in various ways. Banks were saved, financiers and traders made easy money, big companies could take cheap loans and governments could keep on spending. Governments in Europe continued loading up on debt but the man in the street seemed to be missing out on the big financial packages being thrown away so easily to save the financial system. Young people were faced with new challenges, such as exclusion from the property market with soaring home prices and austerity politics hitting the most vulnerable, such as pensioners and single-parents.
When Greece imploded, the EU failed to provide it with a sensible programme of economic support and Greece remains today in economic shambles. Italy, with alarming levels of both private and public debt, looks like it’s heading into a similar Greek scenario.
Then there was the Brexit rebellion. The Euro keeps losing its value as does the geopolitical clout of Europe itself. As of last year, Germany’s export drive lost steam as China’s economic growth subsided and signs of a looming economic recession were all over the place.
At the same time, while all of this was taking place, the far-right in Europe has become mainstream once again.
Last, but not least, the immigration crisis is challenging our moral and rational principles. It looks like the 1930s, but hopefully I am wrong – bad politics, bad economics, the rise of the far-right and an increasing number of disenfranchised workers.
This doesn’t mean that history repeats itself. First of all, Europeans are by far much less trigger-happy than they used to be. We are now much more aware of the dangers of war and racism, and no one foresees the probability that Europeans would go to war with each other again.
But what we are clearly seeing, is this: since 2008 our politicians have been using a textbook economic and financial response to economic crises that crop up, supposedly, unexpectedly.
This time around, we will be using the same text- book measures again, only on a much bigger scale than previously.
I suppose it’s naive to think that if we apply the same measures we have applied during the last economic crisis, we will be getting a very different result, but maybe, eventually all the liquidity in the system will stick and things will stabilise on a permanent basis. They may well do for some time, but what will happen if say, in ten years’ time we are faced with another economic crisis?
Shouldn’t we also get used to the idea that when we come out of lockdown and the pandemic is over, we are going into economic recession and Italy will be at risk of imploding? It is not in our political and economic interest that Italy goes into an economic crisis, but it seems that risk is being underrated, and this should not be the case given the potential political risks if such a scenario occurs.
We are taking huge risks without knowing exactly where we are going to land. We are in uncharted territory and we need a very elaborate and definite navigation plan. Truth is: we don’t have it and politicians themselves do not necessarily know what they are doing. We are in a very tough bind here.
Malta should not be so averse at the idea of the Eurobond, but we should also start looking for more practical solutions. It’s pointless to toe the line at this point when the whole house is on fire. While we put out the fire, we should also start coming up with very well-structured plan for the future.
I’m not saying we need to be idealists. Yes, we should take in more debt to issue much needed economic relief, and even increase public spending, but in the meantime, we should also start planning for the future and have the capability of having more options at hand, given that the world tomorrow is going to be a very different place and we don’t know how is it going to be.
In Malta, specifically, we are exclusively using a European textbook solution. This European textbook is a crisis-by-management system where the ones most benefiting are big companies and banks, while small businesses get crushed and workers feel most of the pain.
Is the system broken? Most probably. Malta, apart from taking ownership of the risks and effects of the Euro’s financial system, is also risking having its financial services industry shut down by the EU – sounds like a very bad deal if this happens. This is a particular crisis and we need surgical solutions for it.
For starters, locally, we can minimise most of the damage by temporally conditioning banking policy: introduce debt jubilees, reduce existing interest rates, clean up the balance sheets, and yes, why not? Let building contractors and big property speculators default on their loans to flush out rent-seeking capital from the system.
At their current state, no one wants to own Maltese banks any way, yet they are a strategic asset which are essential to provide much needed relief to small businesses and workers at this critical stage.
And without any doubt we should also move in to cancel contracts with Electrogas and Steward and immediately appropriate all public assets which have been given off through corrupt government contracts.
Although I write all my words here with healthy scepticism and self-doubt, I write this next postulation with a lot of conviction: the legalese we are told about being unable to appropriate public assets given off under corrupt contracts is total bullshit.
Any driven lawyer can create strong cases for the right political decisions in these cases, however the problem is that our professional and academic class is totally compromised in a system of jobs, networking and government contracts.
I’m afraid there will be hardly any economists or lawyers who will compromise their careers with solutions which may hurt someone in office or on the board of a big company.
I digress. Once the liquidity was out and the financial relief enacted, Maltese politicians are more interested in holding meetings with Sandro Chetcuti and discussing the opening of spring hunting, so they aren’t going to save you.
And in ten years’ time, we’ll be doing a big disaster clean-up by ourselves.
May I be proved totally wrong.