Opening arguments: Europe’s cautious restart

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Hello and welcome to the Intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. As the COVID 19 crisis continues. One way to raise cash and support the whole of Europe might be to issue debt backed by the whole of Europe. But the idea of such Corona bonds is meeting resistance that started long before the coronavirus. And although much of the world's cocoa comes from Africa, very little chocolate is actually made there. That's changing, thanks to a sweet partnership between one of the world's most biodiverse national parks and a bad boy Belgian chocolatier. First up though, Easter for many a time to come together was a lonelier affair this year as much of the world remains on lockdown because of COVID 19. In her first ever Easter address, Britain's Queen reassured those who remained apart.

This year Easter will be different for.

Many of us, but by keeping apart, we keep others safe. But Easter isn't cancelled. Indeed, we need Easter as much as ever.

Pope Francis, delivering a virtual message from an eerily empty Vatican, prayed for the victims of the disease. Yet even as much of the world remains in a suspended state. In Europe, there are small moves back towards normality this week. Spain is allowing some non essential workers to return and Italy will allow some shops to reopen. Other countries such as the Czech Republic, Austria, Denmark and Norway are also considering lifting some measures, including sending children back to school. The question is, as the Pope put it this morning, how to find the right way out of the crisis. Let us pray together, he tweeted for government leaders, scientists and politicians who are beginning to study a way out of the pandemic, though its aftermath has already begun.

Well, this week, the week following Easter, a lot of European countries are looking very hard at how they get out from under the lockdowns that have crippled their economies but of course kept people safe.

Christopher Lockwood is our Europe editor.

They know that they can't keep them going forever and so they're trying to figure out exactly what is the right way, step by step to ease them the first. And they're very small steps in a few countries. For instance, Denmark has reopened kindergartens. Austria has got a plan to move gradually towards reopening. Spain has reopened some private businesses, particularly in the construction sector. But you know, it's still very limited and big decisions still have to be taken. An interesting one to watch will be Germany in the middle of the week where they are having a serious debate involving Angela Merkel and the heads of the German lender or states to decide.

What to do and what are the considerations as these decisions are made. Why is there a move already to open anything at all?

Well, it's a simple trade off, a grim calculus, as we put it recently in the Economist, between how much damage you do to the economy and how many lives you want to save. Now, it's a very complicated calculus. The damage to the economy is enormous. We don't yet know how big. But people are talking about if this were to go on for another three or four months of hits of sort of anywhere from 20 to 30% of GDP across a whole year. I mean, colossal numbers, unemployment rising sharply in a number of countries already. But on the other hand, of course, there's the risk of lots of people dying. Now even that's more complicated because of course, the more people are locked down, that raises the risk of some other kinds of disease, including psychological ones, including terrible things like an increase in suicides and abuse, physical abuse. Also, of course, a weakened economy is an economy that's less able to protect people through its healthcare system in the future. So it's a very, very painful and difficult calculation that countries are having to go through.

And as you say, different European countries are reopening different parts of the economy at different times. Why the difference here? Why isn't there a sense of a European roadmap for this?

Well, all the way through this, there has not been a European roadmap. It's been very striking how absent Brussels has been in this calculation. But put that to one side. There are two other reasons, really. One, of course, is that each is at a different stage along the infection pathway. And another part of it, of course, is just how good the health systems are, how able they are to respond. What this has mostly been about has been improving the capacity of health systems to make sure that you can save the people who could be saved with interventions. They're always, unfortunately, going to be people that die that can't be saved. But there's a big chunk of people that could be saved if the health service were not overwhelmed. Now, there's two ways to deal with that problem. One is to make sure the health service us isn't overwhelmed by shutting the economy down and so preventing transmission or limiting transmission. And the other way, of course, is to improve the capacity of the health system. And both of those things are happening simultaneously. And that's where the trade off comes.

And so as each country makes its own decisions, then how much do you get the feeling they are being guided by the science and how much on the grim calculus you mentioned in terms of keeping the economy afloat to save lives in other ways?

Well, it really is both. You know, the science is incredibly important, but the problem with the science is the science is very imperfect. There's lots of things we don't know. We don't really know whether people can acquire immunity and if they acquire immunity, whether they will keep it for how long. And of course, we don't really know how it affects whole populations because we haven't seen it yet. Running across whole populations, it's still probably only in a minority of people in most European countries. And I've seen numbers that suggest that as little as 10% of people in some European countries are infected. Again, we don't know because there hasn't been enough testing. So the science itself is very difficult. But of course, the science takes the best guess that it can, and then you have to balance that against all the other things.

And of course, it's not just a matter of flipping a switch and everything goes back to normal. There has been endless talk of the risk of reinfections, of resurgences, even if things are looking nominally good in any one place.

Absolutely. There is no question that if countries were to come out of lockdown now fully, you would with a short delay because the virus takes time to manifest itself, have another wave of infection. So it's all about limiting that. Now, some parts of the lockdown will be safer to ease than others. For instance, some businesses that aren't currently operating could operate. For instance, the construction business, absolutely crucial business to the life of a country, perhaps that can go back in some shape or form if people do it in a way where they can practice a bit more social distancing. Some more shops. At the moment, in most European countries, food shops are the only shops that are open. Perhaps you can consider opening more shops. Some things will be very, very slow to open up again. Restaurants, for example, mass gatherings. Those aren't going to happen for A long, long time. Not until there's a vaccine, I would think. No concerts, no sports events. All those kinds of things, I'm afraid will be very slow to recover.

And what about the longer term future when things are back to normal in the sense that there's a disjoint now between what countries are doing in terms of their opening up. But eventually there will be a disjoint in which countries are opened up altogether. I mean, Europe is a joined up economy. Won't things stay disjointed for far longer than any one country's lockdown?

I'm very afraid of this. You say that Europe is a single joined up economy, but what we see at the moment is lots of borders being erected within Europe. They're not supposed to be there under the rules. Well, I mean the rules do allow for emergency situations, but it's not what some considered the goal of the European Common travel area and the single market. I think restrictions on that will remain for, for a long time. And as regards movement from, for instance, outside Europe into Europe, I think that will be very slow in coming. We could see a fortress Europe. I think we will see, you know, fortress countries. I think movement into and out of America will be restricted for quite a long time too.

Christopher, thanks for joining us.

Thank you for having me.

To get a lot more analysis like this, subscribe to the Economist, a trusted source of information and, well, intelligence for 175 years. Just go to economist.com radioffer 12 issues for $12 or 12 pounds. The countries of Europe are not only divided on how and when to ease their lock, they're also divided on how to finance the massive government spending programs that are propping economies up. Other countries such as America and Japan are issuing debt in the form of government bonds. But in Europe, it's not that simple. Borrowing costs for each country vary a lot. So there's been renewed talk about shared debt issued and backed by Europe as a whole, so called Corona bonds. But that has reignited some long standing debates about just how economically integrated the European Union really wants to be.

This argument has come and gone over the years. It first flared up during the euro crisis of 2010-2012, went nowhere. It's now back in a slightly different form.

Tom Nuttall is the Economist's Berlin bureau chief.

The argument with Corona Bonds is that because every country inside the Eurozone has been hit by the COVID 19 crisis, it's not the fault of any of these countries. And yet some countries, because of the fiscal positions that they had when they went into the crisis are less able to respond than other countries. The argument is that it would be appropriate to have a one off issuance of CORONA bonds, the proceeds of which would be used to fund the healthcare response or maybe more broadly the recovery, once the restrictive measures start to be lifted, have rich countries on the hook for the debt of poorer countries and this and that. That's why the resistance from some of the northern wealthier countries in the Eurozone, such as Germany and the Netherlands, to this idea is so strong.

So there's still no consensus on Eurobonds, Corona bonds. The EU has agreed some elements of how to handle this crisis, right?

Yeah.

So there was a meeting of Eurozone finance ministers, video conference, of course, last week. It broke up without agreement and then it reconvened and found agreement finally. And essentially there are three elements to this. There is an agreement that a pre existing bailout fund, the European Stability Mechanism, could be used to extend credit lines worth up to 2% of a country's GDP. The European Commission wants to leverage parts of the EU budget, up to 100 billion euros, to fund national unemployment schemes. And the third element is a boost to the lending capacity of the European Investment bank to the private sector and SMEs in particular. So if you add up all of these things, they're different sorts of programs, but the sort of headline figure is just over half a trillion euros. Given that it wasn't totally clear before the meeting that they were going to be able to agree on anything at all, that looks like something of an achievement, but nobody thinks that it's adequate to meet the overall scale of the challenge.

So what about the Corona bonds then?

This has been punted by the finance ministers back to their bosses, the heads of state and government, who will hold their own video conference on April 23rd. And it's very clear from the way in which the package agreed last week has been discussed in the respective domestic capitals that capitals still very much disagree on this question. The Italian Prime Minister, for example, Giuseppe Conti, has said he's going to continue to push very aggressively for euro bonds. The Dutch, who are sort of on the other extreme of this argument, have in effect said over our dead body. So that discussion on April 23 could continue to be a very tricky and a very divisive one.

So in that sense, the discussion around Corona bonds is fraught with the very same reservations that the conversations about Eurobonds have hinged on.

Yeah, absolutely. I mean, there are some important differences. I think perhaps the most important One is that the specific proposals that have been made for, for some sort of Corona bond and there's a lot of them doing the rounds from academics, experts and so on, they tend to conceive of a one off issuance. This is not sort of ongoing mutualization of debt and it's certainly not mutualization of old debt, which is a thing that particularly rankles some of the northern states. But on the other side, some of the old arguments about Euro bonds that stopped northerners from signing up to them, arguments about moral hazard. If we agree to do this, then the southerners are just going to spend more, more wildly in the future than they have in the past because they know that we'll stand behind them. Those arguments are all still there, but they've been supplemented by one or two other ones. Most importantly the claim that when we're dealing with an emergency like this, we simply don't have the time to set up all of the complicated governance structures. Lots of parliaments would have to vote, maybe some national constitutions would have to change. All of this stuff obviously would take months at an absolute minimum and we simply need to move more quickly than that.

So if all of this hits on the same issues as have been around for years, is there a concern that essentially Europe is not going to get its fiscal and monetary act together to come together on this crisis?

There's certainly lots of concerns and you hear lots of people saying, well, essentially, if not now, if not the moment when an external shock has hit Europe from outside. Nothing to do with overspending governments or anything like that, if not now. But the heat has been taken out of this discussion to a certain extent by some pretty drastic actions that have been taken by the European Central Bank. Last month they launched a program called PEP, the Pandemic Emergency Purchase Programme. This is worth about 750 billion euros that can be increased if necessary. They've also relaxed their rules on what sort of debt that they can buy. This has been specifically designed to forestall any panic in the sovereign debt market. But it doesn't mean that we're out of the woods. At some point that ECB action will expire and the question is what happens next? And perhaps most importantly, what we've already seen from the relatively small national fiscal responses in Spain and Italy compared to countries like Germany, that's unleashed a huge fiscal bazooka to handle. Covid19 we see that these countries governments feel inhibited to act fiscally by their own high debt loads already. Obviously those debt loads are going to get higher and The ECB can't do a whole lot about that. So the extent to which monetary action can help national governments deal with crises of these sorts is limited. That's what we're seeing now. That's why the head of the ecb, Christine Lagarde, is so desperate for European governments to act. My hunch is that she's going to continue to be disappointed.

Tom, thank you very much for your time.

Great pleasure. Thank you.

The COVID 19 pandemic is bringing immense uncertainty to citizens, governments and the global economy. Economist Radio is drawing on the expertise of our international network of correspondents to report on the crisis. On the science.

The more you understand about the mechanism.

Of a virus, the more places there.

Are that you can glue it up on the economics.

The banks are in a really interesting position for this crisis because last time they were maybe the cause of turmoil and this time they could be one of the arms through which the impact of the crisis is dulled.

And on the politics of COVID 19.

Some worst case scenarios have a very large number of people dying. That is going to trigger very, very grave conversations about whose fault this is.

For the latest on the pandemic and more, join us on Economist Radio. Listen wherever you get your podcasts. When you think of a country famous for its luxury chocolate, Switzerland or Belgium might come to mind, but most of the cocoa that goes into chocolate actually comes from Africa. The continent isn't known for turning that cocoa into bars and bon bons. That could soon change though, thanks to a new project by a famed Belgian master chocolatier.

Dominic Poussoon, who is the sort of bad boy of Belgian chocolate, has just co opened a factory in the jungle in Congo.

Olivia Ackland writes about Central Africa for the Economist.

It's just outside Virunga national park, which is one of the most biodiverse parks in the world, full of elephants and hippos and endangered mountain gorillas. But it's under constant threat from poachers and rebels who also live in the region.

So why is this bad boy of Belgian chocolate interested in setting up a factory there?

Dominic Pizzuna is somewhat of a maverick. He's also known as the chocolateur, spelled sh. He's famous for these weird pralines which he pairs with everything from tequila to chicken skins. He first find fame drizzling melted chocolate over these naked women for a photo shoot. And the women all stood in the street in Bruges. And Dominique was arrested shortly afterwards and then released. And then shortly after that, he catered for a birthday party for the Rolling Stones. And he made this chocolate snuff, which the guests had to sniff in lines like cocaine. Dominique Persoon, he got involved with the project because he was approached by some people working at the park. So he's designing the recipe, but the chocolate factory itself is being run by Virunga National Park.

So why does the park want to do this specifically? I mean, it's kind of a strange side project for a national park to have.

Yeah. So the park has a huge problem in that a lot of rebels and militiamen live within its boundaries, and a lot of other people just farm illegally and poach animals, like poach hippos for their meat, poach elephants for their tusks. And so the idea of the chocolate factory is to provide more jobs for people living around the park. And so there are a lot of farmers who grow cocoa just outside the park. And so the chocolate factory will be a steady customer for them, and they'll be able to sell their cocoa there.

And you went along to see for yourself?

I went to visit the chocolate factory, and inside there were three women shelling cocoa beans, which then go into a machine. And then there was this line of whirring machines, two of which were full of melted chocolates. And the manager of the chocolate factory said that he wants to produce the best quality chocolate possible. They've only been made making chocolate for a month, and they're still trying to work out the best possible recipe. He also said that Virunga chocolate will be particularly delicious because they have this very high quality grade of cocoa in the drc.

So about that conflict that defines not only the area around the park, but also kind of the country as a whole. How has that affected this kind of entrepreneurship, this kind of push to make business that serves the park?

The area has been ravaged by conflict since 1996, which was the start of the First Congolese Civil War. And over 200 Rangers have been killed since then trying to protect the park. Something that the park does is they try to employ the widows of the rangers who were killed. So I spoke to a woman called Jacqueline Zawadi, whose husband was shot by militiamen three years ago. There was a confrontation. These militia men were trying to break into the park and to poach, and there was a confrontation and he was shot. The park's employed her ever since. With her salary, she said she can just about afford to put her five children in school. I think to say that the chocolate factory alone will protect Virunga would be an overstatement. But I think it could work. They're gonna produce double the amount of chocolates in the second year that they produce in the first. And the chocolate's delicious. I'm expecting it to fly off the shelves. I ate quite a lot of chocolate during the course of researching the article, and I thought it was excellent.

Well, we appreciate your due diligence in your research, Olivia. Thank you very much for your time.

Thanks very much.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and see you back here tomorrow.

Sam.