Europe’s Pandemic Debt Is Dizzying. Who Will Pay?
PARIS – For nearly six months, Philippe Boreal and his 120 colleagues have been paid to stay from their jobs at the luxury hotel in Cannes, which was forced to close for the epidemic.
Mr. Boreal, a watchman for 20 years, is grateful for the assistance, which is controlled by the French government under a comprehensive plan to protect people and businesses from economic disaster. But as the Kovid-19 crisis aids, he wonders how long this crisis can last.
“At some point you ask yourself, ‘How are we going to pay for all this?” Asked Mr. Borel, who is collecting more than 80 percent of his salary, allowing him to pay the necessary bills and buy food for his wife, the teenager’s daughter. Most every other hotel along the Cannes waterfront is staffed at state funded furloughs – as are countless businesses across Europe.
“The bill seems so big,” Mr. Burrell said. “And it keeps growing.”
For families trying to balance their budgets each month, the fact that European countries are circling because of trillion-euro loans. In France alone, the national debt exceeds 2.7 trillion euros ($ 3.2 trillion) and will soon exceed 120 percent Of the economy.
But governments are far from worrying about debt, as rock-bottom interest rates have given them the right to spend no money to save their economies from the epidemic.
And they spend.
The european union has Maintained its policies Finances to Larges, with decades of strict limits on losses, and overcoming intestinal German resistance to high debt.
The fundamentals of austerity during the 2010 debt crisis led by Germany, when prolific spending in Greece, Italy and other southern eurozone countries pushed the currency towards a breakup.
Epidemic, which is More than 450,000 people died in Europe, Is seen as a completely different animal – a threat that breaks all the world’s economies together. While German officials initially warned about the expense of fleeing the epidemic, European policymakers believe that spending cuts or raising taxes to pay off debts incurred to counter the economic decline Would be silly.
Those debts are rising to levels not seen since World War II. In some European countries, debt is growing so fast that it is increasing the size of national economies.
But for many countries interest rates are around zero due to years of low inflation. While the amount of debt that countries have taken, the government has given the amount to repay the debt.
So can something like this happen even after a free meal? In the current unusual zero-interest world, perhaps yes.
Governments are incurring heavy debt by issuing a growing pile of bonds. Helped by European Central Bank Bulk purchase To make up for that debt, to lower already low interest rates, and to still tap is making a mountain of cheap money for countries.
In the United States, President Biden is adopting an aggressive strategy to counter the epidemic toll with a $ 1.9 trillion subsidy plan. White National debt Now almost as large as the economy, proponents say that the benefits of large spending now exacerbate high debt costs.
In Europe, epidemic spending has so far largely focused on people and businesses floating through the crisis. For Mr. Borel and millions of people like him, support is vital to surviving through a sputtering recovery that now threatens to turn into one Double dip recession.
“Without assistance, things go awry,” said Mr Burial, who receives a post-tax salary of € 1,700 (about $ 2,050) a month funded by the state. “This is allowing us to ride the epidemic and hopefully work will begin soon.”
For now, such expenses are affordable. If central banks continue to buy it, the government debt may never have to be repaid in full. Countries can essentially roll over their loans at low interest rates, an operation to refinance a mortgage.
The European Central Bank effectively lent to eurozone governments Around € 1.2 trillion Last year, and pledged to continue through the summer. Public debt in euro area could Growth An independent think tank in Paris by the end of 2023, as much as € 4 trillion according to the Institute Montanke.
“If there is no risk of a return to inflation, then sky is the limit for debt,” said Nicholas Veron, a senior fellow at the Peterson Institute for International Economics in Washington.
And this points to risk in this strategy. Some economists worry that inflation and interest rates may rise if stimulus investment rises too fast, forcing central banks to put a brake on easy-money policies. If borrowing costs increase, vulnerable countries may fall into a debt trap that they have to struggle to repay.
Simon Tilford, director of Oracle Partnership, a London-based strategic planning firm, said, “If inflation starts to return but there is no growth, the situation becomes very complicated.”
And if debt increases from year to year, governments will have a harder time stimulating their economy to roll around the next recession.
Charged with running their economies through the epidemic, those troubles seem far from over.
“We need to reimburse the loan, and need to devise a strategy to pay the debt,” Bruno Le Mayer said in an interview with a small group of reporters. “But we won’t do anything before development returns – that would be crazy.”
For the strategy to work, Europe must act quickly to ensure a strong recovery, economists warned. While leaders approve € 750 billion ($ 857 billion) Excitement deal In the past year, countries have not spent stimulus as fast as the US has started a revival and created jobs.
New Treasury Secretary Janet L. “The biggest thing we can do, with interest rates at historic lows, is big,” Yellen said.
Conversely, “much of what has been done in Europe is an endorsement of survival,” said Holger Schmidding, chief economist at Bernburg Bank in London. “Existing policies on their own will not bring back development.”
International Monetary Fund This year is expected to increase by 5.1 percent in the United States, where Congress authorized a $ 900 billion package in late December. The fund said Europe would lag behind with a 4.2 percent decline.
As a more contagious version of the virus races through Europe, recovery was expected to be delayed as quickly as possible in summer, with implications for national finances, triggering new lockdowns. Prevent rollout of vaccine Adds another complexity to the expectation of economic expansion.
Thomas Flamang, 28, a materials engineer at an aerospace consulting company in Rouen, is under no illusions about the weakness of the recovery.
During his first months on Furloff, he was expecting things to return to normal. Stuck at home, he went for a long walk and caught up on his reading. But as the weeks passed, the company’s order book did not give him enough time to return to the job.
Without reopening the economy, things are likely to go bad. “For, my company has saved our jobs,” Mr. Flemung said. But if things don’t go bad, he said, layoffs may be unavoidable.
He sees little light at the end of the tunnel.
“Our generation will have to pay for many things: Baby boomers who retire, the cost of the climate crisis,” Mr. Flemung said.
“And now we’re using the printing press for the epidemic, and we have to give all this help back,” he said. “It’s crazy when you think about it.”
Antonella Francini Contributed to reporting.