The 750 billion euro stimulus plan announced by the European Commission has been greeted by many macroeconomic analysts and investment banks with euphoria. However, we must be cautious. Why? Many would argue that a swift and decisive response to the crisis with an injection of liquidity that avoids a financial collapse and a strong fiscal impulse that cements the recovery are overwhelmingly positive measures. History and experience tell us that, indeed, the risk of disappointment regarding the positive impact on the real economy is not small.
The history of stimulus plans in the eurozone should alert us against excessive optimism.
Many analysts and economists are trying to predict the shape of the economic recovery post-Covid-19. To understand how the recovery may look like, we need to look at past recoveries and at the history of pandemics.
Starting with the pandemic, we know a few things. First, there has never been a vaccine for any of the previous 18 Covid types. Second, there has never been a pandemic without a second wave before a treatment existed. Taking both things into account, the idea that many investors have that the worst is discounted may be overoptimistic.
“There is a huge disconnect between markets and the economic reality, and it’s fundamentally based on the view that 2020 is a lost year and therefore what investors need to think about is 2021 is a recovery year. It looks a very dangerous bet to me because if there’s anything that we have learned from this crisis is that estimates for 2021 remain excessively optimistic, and that the V-shaped recovery is more than elusive.”
A straightforward, modern, and understandable approach to our economy that encourages saving, investment, and innovation—leveraging capitalism’s benefits to improve opportunities for everyone rather than a select few.
Capitalism offers greater prosperity and opportunity for everyone, while socialism, unnecessary interventionism, and other choices inevitably fail. But capitalism is quickly falling out of favour with the middle class in the Western world.