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11 Février 2021
A critical review of 2020 Time to revisit our value system, norms ans priorities
The COVID-19 pandemic, which is not over yet, has created a devastating impact on the socioeconomic and health infrastructures of most, if not all, countries. In addition to the deceased persons, it has also affected the lives of millions of people in multiple ways. The crisis entails drastic disruption of economic activity; indeed, this has been the deepest recession since the end of World War II. It is essential to also note that the pandemic has reminded us that societies and their foundations can be fragile.
Undoubtedly, the technological achievements of the last few decades have been remarkable and, not surprisingly, created the illusion of untouchability. Yet COVID-19 reminded us that this may not always be the case. Likewise, we cannot take things for granted. And it remains to be seen how the pandemic will finish and how the new normality will be.
During this difficult period of disruption, technology has proved indispensable to maintain economic activity, communications and also distance learning. But this has its limits; indeed, in most activities human interaction via physical presence cannot be substituted. In the era of globalization and while most theories assumed that the nationstate and its role were not of primary importance anymore, perspectives changed. It was the nation-state that has been playing the most important role in addressing this unique crisis. It seems that both in theory and practice the nation-state comes back as the most important player in the international environment. It may not be an exaggeration to say that this has always been the case; the pandemic and how it is being handled enabled more people to realize it.
The EU, like the US and other major players, were caught unprepared by COVID 19. The major issue though has been the handling of the crisis. Obviously, this is a unique situation. And not surprisingly and unlike the previous Euro-debt crisis a few years earlier, several leaders, technocrats, academics, journalists and other personalities called for a European Marshall Plan. The EU pursued an expansionary monetary policy and also suspended the tight fiscal rules requiring balanced budgets. It also initiated special targeted programs to address the crisis. But it refrained from taking additional bold steps which would have entailed a paradigm shift. The Eurozone could, for example, have initiated a radical policy of money creation and grants to member states in order to help them address the crisis more effectively. It did not take this extra step though, reflecting the conservative position of Germany and other similar minded forces. It is worthwhile noting though that in the Eurogroup meeting on April 9, 2019, it was acknowledged that the way the Euro-debt crisis was dealt with “was not adequate”. Furthermore, the issue of solidarity as a value of the EU, in theory and practice, has been raised. The conservative forces indicate that solidarity in the EU is a reality. The alternative view is that what has been done so far is not enough.
A major issue has been the testing of the Neoliberal Model II and the established orthodoxy in the EU, especially in the Eurozone. I label it Neoliberal Model II in order to distinguish it from what I describe as the Neoliberal Model I which was theoretically introduced in the late 1960’s and was politically pursued in several countries subsequently. Ronald Reagan, Margaret Thatcher and to a lesser extent Helmut Kohl were associated with it. The Neoliberal Model I had much support from the middle classes in several countries; its major pillars included containing unnecessary regulation and public spending, reducing taxes and providing incentives at various levels so as to increase labour supply, investment and innovation. The Neoliberal Model II, mostly associated with Angela Merkel, focused on balanced budgets, even more limited public intervention in the economy, much less public spending and greater reliance on the market forces. The outcome has been increased inequality, the enhancement of poverty, the reduction of the middle classes and higher unemployment. For the first time in many decades the standard of living of the younger generations may be lower than that of their fathers and grandfathers.
The COVID 19 crisis has shown beyond any doubt that the state and its role are indispensable; and that markets have their limitations. We should recall that the obsession with balanced budgets even in times of deep recessions during the previous crisis had led to serious reductions in public spending in various sectors including health. And when COVID 19 arrived this had a serious toll. The record in relation to the Euro-debt crisis and the COVID 19 pandemic points to the need for a new paradigm. Certainly, the market forces are important but at the same time we should acknowledge that some lessons from Keynesian and Neo-Keynesian Economics are still valid and relevant. Moreover, perhaps the COVID 19 crisis should provide the opportunity to revisit our value system, norms and priorities.
It would be an omission not to refer to the adventurous and revisionist policies of Turkey which inevitably constitute a threat to stability, cooperation and peace in the Eastern Mediterranean, the broader Middle East and Central Asia.
To the present day the excesses of Turkey did not have any cost for Ankara. It remains to be seen how this will eventually end. History indicates that appeasement and ignoring excesses do not guarantee peace, stability and security.
Last but not least, the outcome of the US presidential elections on November 3, 2020 has implications not only for Americans but for the world as a whole. President Biden will attempt to redefine the US socioeconomic model while at the same time he, unlike his predecessor, is expected to adopt a multilateral approach in international affairs. It remains to be seen how the US under Biden will influence international politics and the day after.
Andreas Theophanous
Professor of Economics and Public Policy
President, Cyprus Center for European and International Affairs,
Head, Department of Politics and Governance University of Nicosia
Read the paper (pdf)
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