The Economist - USA (2020-07-25)

8 Leaders The EconomistJuly 25th 2020

1

W

hentheleadersoftheEuropeanUnionagreedthisweek

ona €750bn($869bn)packagetohelpmembers’econo-

miesrecoverfromcovid-19,theyanswereda loomingquestion:

whetherEuropewastoodividedtohandlethepandemic.Asin

earliercrises,thevirus’seconomicravagessplittheeu’smem-

bers.Richcountrieswithlowgovernmentdebtandfewerinfec-

tions(suchasGermanyandtheNetherlands)cancopeontheir

own.Someoftheheavilyindebtedandinfectedcountries(such

asItalyandSpain)cannot.Withoutfiscalaid,theyfacereces-

sionsdeepenoughtodragdownthewholeoftheeu.

TheprogrammeagreedtoinBrusselsdoesnotjustavertthat

danger.It doesmoretostrengthentheunionthananyonewould

haveimagineda fewmonthsago(seeEuropesection).Thetotal

isequivalenttonearly5%oftheeu’sannual

gdp, tobespentoverseveralyears,muchofit in

grantsratherthanloans.Moreimportantishow

themoneywillberaised:throughbondsissued

bytheEuropeanCommission.Forthefirsttime,

the eu will collectively borrow large sums,

piggybackingonthecreditworthinessofstron-

germemberstohelpweakones.Byraisingtotal

spendingbytheeuitself(asopposedtomember

states),fromnearly€1.1trnto€1.8trnoversevenyears,it givesthe

cluba potentfiscalweaponagainstrecessiontocomplementthe

monetarytoolsoftheEuropeanCentralBank.Thisisespecially

importantwhennear-zerointerestratesareforcinga shiftin

emphasisfrommonetarytofiscalpolicy.Topaythedebtsback,

andavoiddirectresponsibility,eucountriesmaybetemptedto

granttheEuropeanCommissionmoretaxingauthority.

Allthesemovestostrengthentheeuarewelcome.Yetit isan

exaggerationtosaythatthesummitwasa “Hamiltonianmo-

ment”,analogoustothecreationofa centralisedborrowingca-

pacityfortheUnitedStates’newfederalgovernmentin1790.The

recoveryfunddoesnotpoolcountries’existingdebts,nordoesit

createnewinstitutionslikethosesetupduringtheeurocrisis.

Ontheonehandit setsa precedentforcollectiveborrowingdur-

inganemergencythatwillprobablyberepeated.Ontheother,

whereasa sovereigngovernmentborrowsautomaticallywhen

revenuesdonotmeetexpenditures,theeuwillhavetoendure

gruellingnegotiationseachtimeit wantstodoso.

Inpartthisisnobadthing.ThesummitshowedthatEuropeis

notreadyfora Hamiltonianmoment.Itreflectedsplitsbetween

membersoverwhatpoliciesaredesirableandwhatsortofclub

theeuis.Agroupofwealthy,net-contributorcountriesnick-

namedthe“frugals”(ledbytheNetherlands,alongwithAustria,

Denmark,SwedenandFinland),whichhadmisgivingsabout

proposalsforcollectivedebt,cutthegrantportionfrom€500bn

to€390bn.MarkRutte,theDutchprimeminister,waslambasted

as askinflint bysouthernEuropeans. Mean-

whileViktorOrban,Hungary’sautocraticleader,

infuriatedpeoplewhocareaboutgoodgover-

nance bydemanding that rule-of-lawcondi-

tionsfordisbursementsbediluted—nota great

invitationtoa fiscalunion.

Givensuchmistrust,theeu’sleapsforward

tendtorequirealotofgrubbyhorse-trading.

Thefrugalswereboughtoffwithbiggerrebates

ontheirbudgetcontributions.Enforcementoftheruleoflaw

waswatereddownsufficientlytoappeaseMrOrban.Yetthedeal

givessatisfactionatlonglasttotheeu’s hard-pressedsouth.And

theheroesaretheeu’stwodrivingpartners,FranceandGer-

many,whichlookedpastnarrownationalinterestsandstrived

for a Europeansolution.In AprilAngela Merkel, Germany’s

chancellor,wasstillonthefrugals’sideinopposingcollective

debt.ItwasherdecisiontojoinEmmanuelMacron,theFrench

president,inbackingthissortofdebtthatshiftedthecentreof

gravity.Suchunityamongthebigmembersmakessmallerones

nervous:whatMrMacronseesasa hard-wonprecedentlooksto

MrRuttelikea slipperyslope.Butit isMrMacronandMrsMerkel

whoarebuildingtheeu’s future. 7

Europe pulls together

A €750bn covid-19 rescue package sets a welcome precedent

Collective debt

T

he dozen states of America’s Midwest have a population of

68m, equal to Britain’s. They share an economy worth some

$4trn, equivalent to the gdpof Germany, the world’s fourth-big-

gest. And the region’s swing voters weigh heavily in politics.

Donald Trump won the presidency four years ago thanks to nar-

row victories in Michigan, Pennsylvania and Wisconsin. This

year’s contest may yet be decided there, too. At the same time the

Midwest’s troubles, after decades of industrial decline, are also

outsized. Detroit, despite its recent improvements, is sadly still

emblematic of how hard it is for cities to recover. It has shrunk to

just one-third of its peak population of 1.8m in the 1950s. What

can the region do to prosper again, and what can the rest of the

world learn from its experience?

The Midwest as a whole draws in too few migrants, and too

many of its brightest decide to leave. Until that is reversed, re-

newed prosperity is likely only in some urban parts, not every-

where. A sort of triage is under way. Not everywhere can be saved.

Sometimes outsiders—state or federal government perhaps—

will have to try to make it easier for people to live, work and study

elsewhere, for example by cutting housing costs for those who

move or helping pay for better education. But even Flint, Michi-

gan, which has become notorious for economic decline and poi-

Revive, then thrive

The best-run cities of America’s Midwest offer others lessons in recovery

Regional development