Coronavirus, the blow to the italian economy will last at least three years
How much will the economy collapse in the year of the coronavirus? 8 percent, says the Italian government. A little more than 9 percent say the IMF.
Stuff never seen in peacetime. The problem is that, reading what is written in small under these dramatic predictions, we understand that these are the optimistic hypotheses: it is the fall of the GDP, in the hypothesis that the quarantine ends in May and, since June, slowed down the virus, it starts again. But what if the virus continues to haunt us until next year and the vaccine? How deep can we go? So much, makes the ECB understand, drawing a trio of scenarios, one worse than the other. The exercise, just published, refers to the entire eurozone, but helps to get an idea of what can happen in Italy.
The most benign scenario coincides with the assumptions of the forecasts of the Treasury and the IMF: the quarantine ends by May and from June we return, step by step, to normal rhythms. The eurozone economy, ECB analysts say, is 5 percent smaller than 2020. Each forecast makes history in itself, of course, but roughly speaking, the crisis weighs 60-80 percent less on the eurozone than Italy, according to the Treasury and the IMF.
So what happens to Italy if the nightmare does not dissolve in June? The median scenario drawn in Frankfurt is the one that, day after day, seems most likely: with May the quarantine ends, but more or less extensive measures to contain economic and social activity remain standing. In Europe, says the ECB, this scenario involves a fall in the economy not by 5, but by 8 percent. Roughly speaking, this suggests a drop in Italian GDP of 2020 of 13-15 percent, compared to 2019. The third scenario is the worst. The current quarantine ends in June, but amid new flare-ups of the virus and new periods of isolation, the crisis drags on to a mass vaccination in mid 2021. The European economy shrinks by 12 percent this year. In proportion, the Italian one falls by 20 percent.
Econometric exercises are worth as much as their assumptions and, in this case, with an epidemic in constant evolution, the assumptions change every day. But beyond the numbers, the ECB analysts seem on solid ground, when they say that not only the most severe scenario, but also the median scenario imply that, still in 2022, three years after the outbreak of the epidemic, the European economy will not be able to go back to the 2019 level. All the more true for Italy, where the economy was limping even before the coronavirus.
Who will help us ferry beyond such a stormy sea? Aside from EU aid, yet to be determined, Italy, like the other countries, will have to finance itself mainly by borrowing on the markets. This is why, in this crisis, Christine Lagarde's ECB plays a game perhaps more important than Mario Draghi's ECB in the great financial crisis. Many, however, are convinced that the ECB is doing less today than its colleagues in Washington and also in Beijing. This year, between the renewal of maturing securities and new issues, the eurozone governments are chasing 3,500 billion euros. The thousand billion that are, so far, in the arsenal of the ECB seem too few and the range (up to December) too short.
The problem primarily concerns Italy, the country most at risk. To what extent is the ECB ready to watch our backs, buying our securities and preventing investors from escaping and speculating? The commitment, Philip Lane assures, Frankfurt's chief economist is total. "It is a fundamental task of the central bank - he wrote in a blog published in the aftermath of this week's meeting of the Frankfurt board - to combat destabilizing forces". The weapon is the Pepp, launched in March to counter the epidemic, expiring in December. A thousand billion are few and is December too close? "We are ready - Lane says - to increase the program and adjust its composition as much as necessary and for as long as necessary". Based on the scenarios they publish, in Frankfurt they seem to be aware that it could be a very long time.