{"id":2283,"date":"2020-03-25T07:05:30","date_gmt":"2020-03-25T07:05:30","guid":{"rendered":"https:\/\/www.maxlee.info\/blog\/?p=2283"},"modified":"2020-03-26T07:08:44","modified_gmt":"2020-03-26T07:08:44","slug":"heres-what-mario-draghi-says-europe-must-do-now","status":"publish","type":"post","link":"https:\/\/www.maxlee.info\/blog\/news\/heres-what-mario-draghi-says-europe-must-do-now\/","title":{"rendered":"Here\u2019s what Mario Draghi says Europe must do now to prevent coronavirus recession \u2018from morphing into a prolonged depression\u2019"},"content":{"rendered":"

\u2018Much higher public debt\u2019 to become \u2018permanent feature\u2019 of European economies, says former ECB chief<\/strong><\/p>\n

<\/p>\n

\"Mario
Mario Draghi<\/figcaption><\/figure>\n

Published: March 25, 2020 at 6:10 p.m. ET, By William Watts<\/p>\n

\n\u2018The challenge we face now is how to act now with sufficient strength and speed to prevent the recession from morphing into a prolonged depression, made deeper by a plethora of defaults leaving irreversible damage.\u2019\u2014 Mario Draghi\n<\/p><\/blockquote>\n

That is former European Central Bank President Mario Draghi in a guest column (paywall)<\/a> Wednesday published by the Financial Times, warning that European governments have no time to waste and must be prepared to \u201cfully mobilize\u201d the financial sector to prevent job losses, save businesses and avert an economic catastrophe as a result of the global COVID-19 pandemic.<\/p>\n

Draghi, whose nonrenewable eight-year term ended at the end of October, said the solution will inevitably require a significant rise in public debt. Meanwhile, the loss of income incurred by the private sector, including any debt raised to fill the hole, will need to be absorbed by government balance sheets.<\/p>\n

\u201cMuch higher public debt levels will become a permanent feature of our economies and will be accompanied by private debt cancellation,\u201d said the Italian economist whose term was defined by his 2012 \u201cwhatever it takes\u201d pledge to preserve the euro at the height of Europe\u2019s debt crisis.<\/p>\n

The only effective way for European governments to \u201creach immediately into every crack of the economy is to fully mobilize their entire financial systems,\u201d Draghi said, noting that banks, in particular, extend across the entire economy and \u201ccan create money instantly by allowing overdrafts or opening credit facilities.\u201d<\/p>\n

Since it\u2019s crucial to prevent job losses in the first place, banks must rapidly lend funds at zero cost to companies, he said. And since they would be serving as a public-policy vehicle, the capital they need must be provided by the government in the form of state guarantees on all additional overdrafts or loans \u2014 and the cost of those guarantees shouldn\u2019t be based on the credit risk of the company that receives them, but should be zero regardless of the cost of funding of the government that issues them, Draghi argued.<\/p>\n

Draghi said that while public debt levels must rise, the alternative would be a \u201cpermanent destruction\u201d of productive capacity and the fiscal base \u2014 and that would be \u201cmuch more destructive to the economy and to government credit.\u201d<\/p>\n

Source: www.marketwatch.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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