Gurría calls for further European integration, debt mutualisation in eurozone

Angel Gurría recalled that the European Stability Mechanism (ESM) was set up as a rescue fund, subjected to a series of macroeconomic conditions that had no reason to exist in a health crisis for which the most affected countries, such as Italy and Spain, were not responsible. [CAROLINE BLUMBERG/EPA]

This is the first in a series of high-level interviews originally published by EURACTIV’s partner EuroEFE

The economic and health priorities in the coronavirus crisis are the same – to stop the contagion, according to the OECD General Secretary, Angel Gurría, who insists on the need for more globalisation and further multilateralism and also advocates for greater European integration.

“What failed is not globalisation. What failed were the national policies of some of the countries, in this case practically all of them, because we were caught unprepared for this,” Gurría told Efe in an interview.

The former Mexican foreign and finance minister said each country had initially tried to deal with its own emergencies but we should now look at things in perspective and see that the pandemic raises a “simultaneous problem”: the spread of the virus and its consequences in the economic field.

In his opinion, this complexity justifies the need for “a great order, great solidarity, and for the measures adopted by each country to be mutually reinforcing”, as well as for coordination within the G7, the G20 and the European Union (EU).

Gurría supports debt mutualisation in the eurozone

Gurría told the eurozone countries that “now is the time” to jointly issue debt, which would be important “not only to support those who need it most (…), but it would also be a step forward for European integration” that would benefit everyone.

He recalled that the European Stability Mechanism (ESM) was set up as a rescue fund, subjected to a series of macroeconomic conditions that had no reason to exist in a health crisis for which the most affected countries, such as Italy and Spain, were not responsible.

For this reason, he prefers another alternative, “a new instrument in which risks are shared, whereby everybody wins, and in which solidarity the option chosen”.

The sole condition of the above would be that money should be allocated to tackling the problems of this COVID-19 crisis.

Gurría told Efe that he does not want to fall into making catastrophic predictions and is convinced that, even if there is no commitment on the so-called “coronabonds” – a name he does not like – the EU will not disappear.

However, “an opportunity would be lost and lost opportunities go on the liabilities side of the balance sheet”.

Fighting the virus, an economic priority

The OECD has estimated that for each month of confinement, two percentage points of gross domestic product (GDP) that could have previously been expected will be wiped out from growth, which does not mean that these measures should have to be quickly stopped.

Gurría repeated that “the debate between economy and health or between health and economy is totally false. The sooner we finish with the virus (…), the sooner the damage it has caused can be repaired”.

And, he said, “if confinement is the best approach, we should insist on it. It will have a cost implication. The costs will be high, but they are to avoid even greater costs. And we are not only talking in terms of lives, but also on economic terms”.

The OECD Secretary-General warns that, as long as the epidemic is out of control, economic uncertainties will persist, whether in the large European economies, the United States or Japan.

The advantages of partial unemployment

He pointed out that European countries with social protection systems are making massive use of partial unemployment schemes (Temporary Employment Regulation, also known as ERTE),  which he considers an advantage in maintaining the link between the worker and the company.

In the United States, “economic flexibility has always been the key” and the result now is that the employees of companies with no activity are being massively laid off, relegated to unemployment benefits. More than 16 million US workers are now affected.

In Latin America and in other developing regions, the “drama” of this situation is the lack of resources to provide social protection to the population in confinement and the lack of health
systems that rich countries have.

With unofficial employment rates averaging 45% in Latin America, 60% in Mexico and 90% in India, “the problem is that people have to go out and earn their daily bread. They live by the day”. The dilemma here is that “the virus is being replaced by hunger,” he added.

Gurría thinks it is too early to draw conclusions about whether Italy or Spain, which have been badly affected by the epidemic in health terms, will also be the ones to suffer the most economically.

“Certainly, they will be affected,” he acknowledged, but the evolution of the pandemic cannot be predicted, and in both cases “we are starting to see some encouraging elements” in a trend towards stabilisation.

He added, however, that in Europe, Germany has shown signs of having a “health infrastructure which was better prepared to handle such a large number of patients”.

[Edited by Catalina Guerrero/Zoran Radosavljevic]

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