Homeopathy doesn’t work either in human or economic health challenges.

While the range of measures taken across EU member states and in the UK to the COVID-19 pandemic may vary, it is very clear that no country is putting all their faith in a homeopathic or laissez-faire option.

Even in the absence so far of an antidote, intervention-based directed measures are very much the core part of all government responses…and rightly so.

Lack of reponse

Unfortunately unlike the public health aspect of this pandemic, the economic impact may well be left to homeopathy or laissez-faire inertia if the lack of response to the economic crash of 2008 to 2011 is anything to go by.

The EU commission, in conjunction with member state governments, needs to implement a range of fiscal measures to support industries hardest hit by the pandemic.

Unfortunately the first utterances by EU Commissioner Vestager this week are coloured by usual restrictions of supports to SMEs only.

The pandemic does not restrict its impact to SMEs, so why should government responses?

Any notion, as was publicly proclaimed by DG Competition in the EU in 2008, that targeted state interventions will either disturb individual member states’ budgetary balances or disrupt or prevent natural market-based responses needs to be dismissed this time in the same way as a solely homeopathic response to the virus would be:

  • inertia is not a response,
  • there is very little difference between laissez-faire and incompetence,

  • unlike people employed by the EU commission, most other EU citizens do not have guaranteed incomes and guaranteed pensions,

  • jobs impacted are linked to companies of all sizes including very large companies. Most agricultural output in Ireland, for example, is processed by companies classified as large companies so a restriction on supports to SMEs only, is meaningless and equivalent to no response. Perversely, in 2008, member states spent as much or more on unemployment benefits and other supports as they were prevented from spending on supporting unemployment!

    • Concerted fiscal reponse

    A concerted fiscal response that involves targeting large sums of money at specific sectors, companies and individuals including - but not restricted to - tourism, hospitality, aviation, medicines, food production and others critically impacted, is needed.

    A well-funded fiscal response is particularly necessary in the EU/ Euro economy because, unlike the UK or the USA, the Euro is not devaluing in response to the expected economic slowdown.

    Moreover, in addition to currency devaluations geared at boosting export competitiveness, both the US and UK are committing billions to support their economies.

    Struggling

    A review of the responses to the 2008 crash shows that the US stimulus-based economy emerged from recession in 2011, with the austerity-driven EU economy struggling to “recover” until 2016.

    And EU GDP growth has been anaemic since then.

    An OECD report in February 2020 prior to the pandemic stated that the German economy would grow by only 0.4% in 2020 and had narrowly avoided a recession twice in the last 18 months.

    The EU state aid book runs on the basis that the EU single market can solve all economic challenges and that state interventions are banned because they merely crowd out private finance.

    This ideological ineptitude was exposed as totally inadequate in the 2008 response and has failed dramatically in the context of the climate change challenge.

    Homoeopathy, either in medicine or in economics, will not serve the needs of EU citizens.

    The EU commission needs to get over its ideological obsessions and act in tune with the reality of the pandemic and the needs of its citizens.

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