As the UK and USA free themselves from the shackles of monetary orthodoxy, the EU struggles on trying to combat the economic impact of the coronavirus, argues Bill Blain.

Governments around the globe have pledged trillions to address the Virus Pandemic. It doesn’t matter if markets aren’t convinced – as I write, it looks like we are heading for another down day in stocks. Yesterday’s bout of coordinated Global Spending promises are about keeping populations safe and secure by protecting the global economy from the Virus uncertainty.

Despite my earlier misgivings about Rishi Sunak as Chancellor, he and Boris delivered a blinder yesterday, a package likely to get the UK through the Virus Crisis with far less collateral damage than we ever expected.

The “Do-What-Ever-It-Takes” Sunak package might not have been fully thought through, or completely watertight, yet the devil will be in the detail and they will be patching over holes like exactly how it will work, including protection for renters over the next few days. But, it should do pretty much exactly what is needed: Providing Protection for the economy and the population from financial uncertainty through the crisis. It’s a wartime economy solution that is going to substantially mitigate the negative effects of the virus.

You can tell it’s good because opposition leaders are struggling to say anything substantial to knock it down.

Sunak and Boris threw away the rules and economic orthodoxy. They have promised £350 bln immediately and as much more as it takes. How the UK can afford it is not important, and probably irrelevant. We spent much more on bailing out useless banks in 2008. The Hardest Working Civil Servants; the UK’s Debt Management Office, will spirit up the money from somewhere, or working with The Bank will conjure it up by some slight of the fiscal hand, imaginative accounting and a bit of (as yet undiscovered) Haldane magic.

That’s the great thing about being a country that owns the keys to its own printing presses and can make as much money as it needs. Functional Money Trees are a credibility game; If the UK retains credibility then we don’t need to worry about devaluation and importing inflation. Let’s just move on with recovery.

However, is all this enough to stop the market panic and signal it’s time to start buying UK Inc? Maybe, but it certainly feels like the end of the beginning with real support thrown under the UK. Something firm now underlies the market.

For now, the big danger for the UK is not about what we do internally, but how well the rest of the global economy adapts and responds to the virus. If the world crashes into depression as a result of the Virus, the UK will not be immune.

France, Germany, Spain and Italy are going large in terms of the money they are pledging to support business and consumers. (First word on the French spending list was Nationalisation… as it always is…)

However, there is a problem. Unlike the UK, they do not have access to a healthy money tree fruiting unlimited amounts of Euros.

But what can Legarde’s ECB realistically do? She is a politician with a smattering of banker-speak. She was put in place by Macron to solve a political problem – which boils down to getting Germany to agree to German workers funding French pensions and busted Italian banks. While this might have been achievable in good times in the name of a closer, more unified Europe, can it survive the current crisis?

No one in the Rich North is likely to listen or prioritise closer economic union now. They are focused on the domestic politics and, of course, the virus.

The problem for Europe is this needs a coordinated Euro-Wide response now. It needs desperately to dispense with all the Euro’s deficit rules and come up with a coherent wartime economic rescue plan – a Marshal Plan Mark 2 – to get Europe through the crisis. But how could that happen with the ECB being a monetary central bank with no political power? Does anyone believe Lagarde is the right person to deliver it?

The key issue is even more insidious. Without clear direction, countries will continue to diverge from the Euro rules, making it less and less sustainable. Meanwhile, Europe is going to fall further and further behind in terms of growth and struggle to avoid deeper recession escalating job losses.  It looks mired in an inescapable negative feedback loop.

In contrast, I reckon the Anglo Saxons may get an unexpected economic boom similar to what happened in the 1940s and beyond from an easy money “wartime virus” economy. As the UK and USA free themselves from the shackles of monetary orthodoxy, the EU nations struggle on trying to use someone else’s currency, which is never going to be a good thing when the crying need is for fiscal spending, helicopter money, massive tax and lending programmes, while the deficit rules demand austerity!

What we will see next is the US and UK spending their way out of trouble. A massive demand side boost as confidence returns, a wave of SME investment as they sup at the trough of government benevolence, and hopefully a gesture towards paying for it by taxing the bejesus out the rich.

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