38 Europe The EconomistMarch 28th 2020
T
o explain acomplicated story, it helps to have a fable. Those
who watched the last euro-zone crisis often turned to Aesop’s
story of the ant, who worked hard all summer ahead of the coming
winter, and the grasshopper, who lazed about during warm weath-
er only to come begging for a handout when the cold arrived. The
euro zone, in this simplistic telling, was split between ants and
grasshoppers. On the one side were rich, northern countries such
as Germany that reformed their economies and spent little during
the long summer of the 2000s. On the other were profligate grass-
hoppers, such as Greece and Italy, that ran up chunky deficits or
left their inefficient economies untouched, causing misery when
the financial crisis hit. For the ants, this was vindication. When the
grasshoppers came begging, they were forced to live like ants, with
strict rules on spending and often painful economic reform.
Chirps of complaint were ignored. Ants ruled.
Less than a decade later and the grasshoppers are in the ascen-
dant. eumember states have agreed to rip up spending rules to
cope with the economic wreckage caused by covid-19. Govern-
ments have gorged themselves at a fiscal buffet. Spain launched a
stimulus worth 3% of gdp. France put out extra spending amount-
ing to 2% of gdp. Even Germany, the queen of the ant colony, has
joined in. Berlin burst through its “black zero” rule, which insists
on a balanced federal budget, with a stimulus package worth 4% of
gdp. It will even borrow €156bn ($170bn) to pay for it. “There are no
rules,” says Claus Vistesen, an economist at Pantheon Macro-
economics, summing up the new mood. “Why not go big?”
In fact, the grasshoppers have been quietly gaining ground for
years. Grumbles about fiscal rules beloved by the ants—which sup-
posedly limit government deficits to 3% of gdpand national debt
to 60% of gdp—have been growing. “Flexibility” has been the pre-
ferred euphemism for a concerted effort to water down the rules,
which gave the European Commission finger-wagging rights over
the individual budgets of member states. Other efforts to intro-
duce a special carve-out for spending on environmental policy,
which will be an increasingly large chunk of government spending
in the coming decades, were gaining ground. An ideological
breeze was already blowing in favour of those who wanted looser
spending. The novel coronavirus has turned it into a hurricane.Ants were once backed at the highest levels of Europe’s institu-
tions. But austerity’s main advocates have moved on. The commis-
sion has become steadily more relaxed about spending. At the start
of the last decade, the European Central Bank was among the loud-
est voices for austerity. Jean-Claude Trichet, the then president of
the bank, implored countries to rein in spending or face ruin. By
the end of the decade, Mr Trichet’s successor, Mario Draghi, was
practically begging countries to spend more—a call that his suc-
cessor, Christine Lagarde, has matched. Different leaders now sit
round Europe’s top table. Only two veterans of the original euro-
zone crisis remain in charge of their countries: the Dutch prime
minister, Mark Rutte, and Germany’s Chancellor, Angela Merkel. It
is little surprise that Mr Rutte and Mrs Merkel nod to the orthodox-
ies of a previous era they helped shape. Elsewhere, fresh blood has
led to fresh thinking.
The ant mentality is still strong in some countries. Olaf Scholz,
the German finance minister, boasts that it was only previous fis-
cal rectitude that has allowed such a large response to the crisis
“without batting an eyelid”. It is an argument repeated by Dutch of-
ficials, who justify their decision to unbuckle their fiscal belts with
reference to their previously strict diet. Such a claim is under-
mined by the fact that countries with flabbier finances now have
the same capability to borrow and spend themselves out of trou-
ble. Paris has promised to splurge in response to the crisis. Despite
running a deficit every year for the past two decades, the French
government’s borrowing cost is only fractionally higher than that
of the Netherlands, which has run a surplus since 2016.
The scale of the covid-19 crisis offers a nihilistic twist to Aesop’s
fable. Sometimes a winter is so harsh that previous behaviour be-
comes irrelevant. The coming crisis will trash the finances of eu
countries whether they were previously parsimonious or glutton-
ous. The Netherlands has squirrelled away about €30bn in sur-
pluses since 2016. But this is dwarfed by the €90bn it may now have
to borrow. Practically every country will exit the crisis with bloated
debts and a heaving deficit. Bragging about having slightly healthi-
er finances against such a backdrop would be like boasting about
having the cleanest face at a mud-wrestling contest.Hopping mad
Grasshoppers do not have everything their way. On March 25th,
Paris and Rome led a group of nine countries demanding the euis-
sue mutually guaranteed debt in response to the crisis. This idea is
dismissed in Berlin and The Hague. A compromise where coun-
tries struggling to pay for the covid-19 response can access bail-out
funds without overly strict conditions is more likely. At the start of
the decade, the grasshoppers would have leapt at such a deal; now
they fume that the ants have not capitulated further.
In this way, the grasshoppers are repeating a mistake of the
ants’. Rather than building a fiscal policy that worked for both
camps, ants forced grasshoppers to adopt ant ways. As a conse-
quence, resentment festered and populists thrived in southern
Europe, which snapped back to its fiscal instincts as soon as the
opportunity arose. Similarly, a bout of profligacy in response to a
crisis will not compel the likes of Germany to adopt a loose fiscal
policy for ever. Already, the ants in Brussels and national capitals
mutter that fiscal discipline will be needed to bring order to public
finances once this crisis has passed. Both sides must recognise
they are stuck together. Rather than triumphant chirping, a com-
promise between ant and grasshopper is in order. A lasting peace
trumps temporary hegemony every time. 7Charlemagne Aesop’s euro zone
How the grasshopper triumphed over the ant