The day of reckoning has now come for the Italian economic crisis, worsened by the Covid-19 pandemic and the related lockdown.
As the Italian Statistical Institute (ISTAT) showed, 34% of Italian production has been negatively affected. The activity and operations of 2.2 million companies, accounting for 49% of the total, have also been suspended, but 65% of the entire export business has been closed.
This means that Italy’s economic system is changing.
All this has stopped – hopefully temporarily – the work of 7.4 million employees (44.3% of the total number of private employees not directly working in offices) and, along with the fear of coronavirus, it has obviously had a snowball effect, which has soon greatly reduced the confidence rate of consumers and businesses.
Production has been stopped for 34.2% of companies and the same holds true for 27.1% of value added.
Therefore, considering the general lockdown envisaged, the fall in jobs currently affects 385,000 workers, 46,000 of whom are irregular, to the tune of 9 billion euros of wages.
The most affected sectors have been catering and accommodation (-11.3%), logistics, transport and trade (-2.7%).
With sectoral closures envisaged until June, the overall reduction in value added amounts to 4.5%.
The employees affected by definitive closures will be 900,000 approximately, 103,000 of whom are irregular, for a total amount of 20.8 billion euros of lost wages.
That is where the complex and long-standing E.U. issue comes in.
If we consider all the possible and already proposed E.U. funds, we are talking about 100 billion euro of resources, while it is very likely that Italy may have a “firepower” to generate credits and funds up to 300 billion euros. It would need them all and probably they will not be enough.
We should also consider the future 172 billion euros from the Recovery Fund.
The Conte II government has so far mobilized – albeit with badly drafted, superficial and even naïve rules and regulations – about 75 billion euros of resources, all based on budget deficit.
The so-called Cura Italia decree of last March “mobilized” 25 billion euros and 55 billion euros were mobilized with the recovery Decree of last May.
Certainly not everyone has yet reached this money – sometimes not even many of them. The funding to companies -shambolic and all foolishly used through the banking system, which is structurally inefficient – reminds us of what a great Lombard entrepreneur used to say years ago: “What do we industrialists ask of the State? That it gets out of the way”.
The European Funds from SURE, the European Investment Bank and the European Stability Mechanism will mobilize about 270 billion euros throughout the European Union, with a share for Italy equal to 96 billion euros.
They are certainly not enough to rebuild the production system and compensate for damage.
SURE is currently worth around 20 billion euros for Italy alone, but only to finance the Redundancy Fund, while 40 billion euros will be the Italian share of the 200 billion funds provided by the EIB only for SMEs.
Therefore, Italy will go into debt – albeit on favourable terms -but not to get what it really needs.
The rest will certainly have to be borrowed on the financial markets and with our own public debt securities which, however, at maturity will be secondary to the ESM or EIB loans.
Another key problem is that if and when – but it will happen anyway- the standard rules of the Stability Pact are back in place, we will be left with a very high debt, but still liable to all the reprimands of both the “markets” and the E.U. which, at that juncture, may also revise the terms and conditions of the loans already in place.
For Italy, the Recovery Fund could make available the above stated 172 billion euros, of which 90 billion of loans and 81 billion of grants.
At the end of 2020, however, the Italian public debt will rise by as many as 15 points of GDP.
Why? Firstly, because the denominator will obviously be lower: the economic downturn resulting from the coronavirus crisis will be much wider than the one occurred in 2008, with a very severe 5.3% decrease compared to the GDP recorded in 2008.
Currently Confindustria, the General Confederation of Italian Industry, estimates a 6% drop in Gross Domestic Product, while Goldman Sachs estimates a 11.6% fall.
Obviously there is also the inevitable increase in public spending, which is another public debt problem, hoping that speculation will stay calm – which is unlikely. There will also be a sharp drop in tax revenue.
For example, it is estimated that 20% of the professionals registered with professionals Rolls and Associations risks being forced out of the market. It is no small matter. Other associations in the sector provide similar data.
Hence, if we assume a 6% GDP reduction, the debt-to-GDP ratio would rise from the 135% of late 2019 to at least over 153% at the end of 2020.
With an11% GDP fall, the debt-to-GDP ratio in late 2020 would be equal to 163%.
Obviously, in such a context, even pending the suspension of the Stability Pact, Italy’s debt would be very hard to support.
Here the problem also lies in primary surplus. According to our data, even if we assume a limited 2.5% GDP rebound in 2021, with an unchanged cost of debt (2.6% in this case) there would be the absolute need for primary surpluses of at least 2.3% and 2.6%, respectively, in the case being studied of a 9% fall in GDP and also in case of an 11% collapse.
In other words, the government should cut public spending always below 40 billion euros compared to taxation. This is impossible.
Therefore, we must necessarily monetise the extra-deficit with the ECB -monetise and not postpone payment until maturity – but for a very long period of time and for amounts that will probably be much higher than the current ones. It will also be necessary to issue common E.U. debt securities.
Otherwise the markets, which have already laughed at a currency that has not even a common taxation and a single public budget rule, will pounce on the poor wretched Euro and destroy it.
Then there is the ECB. On June 4, 2020 it announced the expansion of the Pandemic Emergency Purchase Program (PEPP) from 750 to 1,350 billion euros and also its extension until June 2021 and, in any case, until the end of the emergency situation.
However, there is additional data to analyse. Firstly, the current PEPP share mobilized for each E.U. Member State in the March-May 2020 quarter still corresponds, in essence, to the capital key.
The capital key is the mechanism whereby the ECB purchases sovereign debt in proportion to each country’s ECB share. The key is calculated according to the size of a Member State in relation to the European Union as a whole. The size is measured by population and gross domestic product in equal parts. In this way, each national Central Bank has a fair share in the ECB’s total capital.
With two significant exceptions for the time being: France in a negative senseand Italy in a positive sense.
In other words, France is actually supporting Italy’s public debt. Obviously it cannot last long.
Even in the Italian debt case, however, the PEPP share does not seem to be as high as usually believed.
The maximum absorption has long been recorded by the TLTRO purchase programme. Indeed, these are short-term operations and the markets know they will end soon.
What next? There is no alternative option.
Let us not even talk about the possibility that, based on the pressure from the so-called “thrifty countries”, well led by Germany, this mechanism may stop all of a sudden.
There is also another factor that should be better studied in Italy, namely the ruling of the German Constitutional Court based in Karlsruhe.
As made it very clear by the German Constitutional Court, it concerns the ECB programme known as Public Sector Purchase Programme (PSPP).
Created in 2015, it is still operational. It is not yet known for how much longer, to the delight of speculators.
On points of law, the German Constitutional Court challenged the 2018 judgment of the European Court of Justice, in which the Luxembourg judges considered the ECB’s intervention unlawful, but rather deemed that the E.U. Court should only confine itself to the actions and deeds manifestly exceeding the limits set by the Treaties and the ECB Statute.
Therefore, the issue at stake in the current Karlsruhe ruling concerns the principle of proportionality (Article 5 TEU).
Based on the principle of proportionality, in fact, the E.U. can take action in “shared competence areas” (which are listed in Article 4 of the Treaty on the Functioning of the European Union) only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States, but can rather be better achieved at E.U. level.
Certainly the monetary policy strictly falls within the E.U. and ECB competence, but the ECB’s action has inevitable repercussions on economic policy, which is in any case a shared competence area.
Hence, as the Karlsruhe judges maintain, the issue lies in defining whether the ECB enjoys independence even in relation to the treaties establishing it or whether the ECB itself should in any case follow the principles of the E.U. system to which it belongs.
In essence, it is a matter of keeping fiscal and monetary policy still separate, and this is scientifically difficult. The dream of every badly aged and old-fashioned monetarist.
In essence, however, the Karlsruhe ruling tells us that the Euro area is sub-optimal(as we already knew, since Robert Mundell’s model certainly does not apply to the E.U. and the Euro) and is in any case not representative.
We have already known it, too, and indeed for a long time.
The Euro is now a handicap for most E.U. Member States except Germany.
The system of fixed rates with the European currency enables Germany to be increasingly competitive on the export side, in the absence of mechanisms to readjust foreign trade balances.
Moreover, there is not even a real and homogeneous tax policy in the E.U.Member States, not to mention the ban on funding the Member States’ debt, which was established as far as the Maastricht Treaty.
With a view to avoiding this ECB funding mechanism, which may be rational but is illegal under the E.U. Treaties, Germany basically asks us to sell the public debt securities purchased by the ECB before their maturity.
That is fine, but it only means that a Member State’s debt can never be cancelled by purchasing the securities through its Central Bank.
Hence the securities continue to exist and be painstakingly renewed or possibly continue to re-enter the market.
Facts are facts, however, and without Mario Draghi’s quantitative easing (QE), France, for example, could certainly not have 32% of its public debt been bought back by the Eurosystem.
When all E.U.Member States’ securities reach maturity, other ones are always purchased, so that the exposure remains around 33% and Germany is happy with this strict compliance with the law.
This 33% limit is self-imposed by the ECB so as to avoid one of the Karlsruhe conditions, i.e. the national voting thresholds, within the ECB, for rescheduling the debt of an individual State.
It should be noted, however, that the ECB funds the absorption of E.U. countries’ public debt with the creation of money ex nihilo, like all Central Banks in the world. Nevertheless,this is still explicitly prohibited by the Treaties, but is barely justified, at legal level, with the aim of curbing inflation.
An economic ideology which is now very old-style, but still very fashionable within the European Central Bank.
The various ECB sovereign debt purchase programmes are already worth over 1,000 billion euros, accounting for 8% of the entire Euro area.
However, with a view to really operating in this area, the ECB must also get rid of the German Constitutional Court’s first ruling of 2017, namely the 33% limit and hence the obligation to put the purchased securities back into circulation immediately after the end of the pandemic.
Reselling, on the secondary market, the securities still maturing would cancel all the monetisation benefits, but a new PEPP will be needed in the future, without quantitative limits and for a long period of time.
And the ruling of the German Constitutional Court and Germany itself, with or without “Nordic” or “thrifty” watchdogs, will certainly get in the way. Hence for Italy (and France) there will not be much room for manoeuvre.
The Fourth Reich is advancing not with the overheated “Tiger” tanks or with the Pervitinephedrine drugs, but with the monetary game on a non-rational currency.
Germany, however, said a very clear “no” to this process of debt repurchase and absorption, precisely with the Karlsruhe ruling of May 5.
The current PEPP is already outlawed under German law. We need to remember it or Germany will make us remember it.
Italy, however, will not survive within the Euro area without QE, PEPP or any other trickery may be devised by the European Central Bank. The same holds true for France, although it still does not say so clearly.
When, at the end of the three months allowed by the ruling of the German Constitutional Court, the Bundesbank withdraws from the purchase operations, it will obviously start again to put several thousand Bunds purchased with the ECB back on the market.
The sales of these securities will make rates rise in Germany, an increase that will be counteracted by the flight of Italian and French capital to buy German debt.
At that juncture, Germany itself will autonomously carry out controls on capital, which is tantamount to paving the way for its exit from the Euro.
What about the United States? At the end of 2019, before the lockdown, the share of speculative debt at high default risk amounted to 5,200 billion U.S. dollars.
Over the last two months of Covid-19 crisis, 1,600 companies a day have gone bankrupt in the United States, while consumer debt – a sort of crazy magic wand for American spending – has decreased by at least 2 billion U.S. dollars per month.
It is a severe drop for those who foolishly live on debt, not to mention that in late 2019 consumption was worth 75% of the U.S. GDP.
Therefore, considering the close correlation existing between consumer credit and consumption – and hence GDP – in the United States, there will almost certainly be a further crisis in companies’ solvency there.
Since 2008 FED’s interventions have been worth 7,000 billion U.S. dollars, and the financial assets on the U.S. market are worth approximately 120 trillion dollars, i.e. 5.5 times the North American GDP.
Hence, not even the United States will give us a chance to find a way out or an exit strategy.
How Bangladesh became Standout Star in South Asia Amidst Covid-19
Bangladesh, the shining model of development in South Asia, becomes everyone’s economic darling amidst Covid-19. The per capita income of Bangladesh in the fiscal year 2020-21 is higher than that of many neighbouring countries including India and Pakistan. Recently, Bangladesh has agreed to lend $200 million to debt-ridden Sri Lanka to bail out through currency swap. Bangladesh, once one of the most vulnerable economies, has now substantiated itself as the most successful economy of South Asia. How Bangladesh successfully managed Covid-19 and became top performing economy of South Asia?
In March 1971, Sheikh Mujibur Rahman declared their independence from richer and more powerful Pakistan. The country was born through war and famine. Shortly after the independence of Bangladesh, Henry Kissinger, then the U.S. national security advisor, derisively referred to the country as a “Basket Case of Misery.” But after fifty years, recently, Bangladesh’s Cabinet Secretary reported that per capita income has risen to $2,227. Pakistan’s per capita income, meanwhile, is $1,543. In 1971, Pakistan was 70% richer than Bangladesh; today, Bangladesh is 45% richer than Pakistan. Pakistani economist Abid Hasan, former World Bank Adviser, stated that “If Pakistan continues its dismal performance, it is in the realm of possibility that we could be seeking aid from Bangladesh in 2030,”. On the other hand, India, the economic superpower of South Asia, is also lagging behind Bangladesh in terms of per capita income worth of $1,947. This also elucidates that the economic decisions of Bangladesh are better than that of any other South Asian countries.
Bangladesh’s economic growth leans-on three pillars: exports competitiveness, social progress and fiscal prudence. Between 2011 and 2019, Bangladesh’s exports grew at 8.6% every year, compared to the world average of 0.4%. This godsend is substantially due to the country’s hard-hearted focus on products, such as apparel, in which it possesses a comparative advantage.
The variegated investment plans pursued by the Bangladesh government contributes to the escalation of the country’s per capita income. The government has attracted investments in education, health, connectivity and infrastructure both from home and abroad. As a long-term implication, investing in these sectors helped Bangladesh to facilitate space for businesses and created skilled manpower to run them swiftly. Meanwhile, the share of Bangladeshi women in the labor force has consistently grown, unlike in India and Pakistan, where it has decreased. And Bangladesh has maintained a public debt-to-GDP ratio between 30% and 40%. India and Pakistan will both emerge from the pandemic with public debt close to 90% of GDP.
Bangladesh’s economy and industry management strategy during Covid-19 is also worth mentioning here since the country till now has successfully protected its economy from impact of pandemic. At the outset of pandemic, lockdowns and restrictions hampered the country’s overall productivity for a while. To tackle the pandemic effect, Bangladesh introduced improvised monetary policy and fiscal stimuli to bring them under the safety net which lifted the situation from worsening. Government introduced stimulus package which is equivalent to 4.3 percent of total GDP and covers all necessary sectors such as industry, SMEs and agriculture. These packages are not only a one-time deal, new packages are also being announced in course of time. For instance, in January 2021, government announced two new packages for small and medium entrepreneurs and grass roots populations. Apart from economic interventions, the government also chose the path of targeted interventions. The government, after first wave, abandoned widespread lockdown and adopted the policy of targeted intervention which is found to be effective as it allows socio-economic activities to carry on under certain protocols and helps the industries to fight back against the pandemic effect.
Another pivotal key to success was the management of migrant labor force and keeping the domestic production active amidst the pandemic. According to KNOMAD report, amidst the Covid-19, Bangladesh’s remittance grew by 18.4 percent crossing 21 billion per annum inflow where many remittance dependent countries experienced negative growth rate. Because of the massive inflow of remittance, the Forex reserve of Bangladesh reached at 45.1 billion US dollar.
Bangladesh’s success in managing COVID19 and its economy has been reflected in a recent report “Bangladesh Development Update- Moving Forward: Connectivity and Logistics to strengthen Competitiveness,” published by World Bank. Bangladesh’s economy is showing nascent signs of recovery backed by a rebound in exports, strong remittance inflows, and the ongoing vaccination program. Through financial assistance to Sri Lanka and Covid relief aid to India, Bangladesh is showcasing its rise as an emerging superpower in South Asia. That is why Mihir Sharma, Director of Centre for Economy and Growth Programme at the Observer Research Foundation, wrote in an article at Bloomberg that, “Today, the country’s 160 million-plus people, packed into a fertile delta that’s more densely populated than the Vatican City, seem destined to be South Asia’s standout success”. Back in 2017, PwC (PricewaterhouseCoopers) report also predicted the same that Bangladesh will become the largest economy by 2030 and an economic powerhouse in South Asia. And this is how Bangladesh, a development paragon, offers lessons for the other struggling countries of world after 50 years of its independence.
Build Back Better World: An Alternative to the Belt and Road Initiative?
The G7 Summit is all the hype on the global diplomatic canvas. While the Biden-Putin talk is another awaited juncture of the Summit, the announcement of an initiative has wowed just as many whilst irked a few. The Group of Seven (G7) partners: the US, France, the UK, Canada, Italy, Japan, and Germany, launched a global infrastructure initiative to meet the colossal infrastructural needs of the low and middle-income countries. The Project – Build Back Better World (B3W) – is aimed to be a partnership between the most developed economies, namely the G7 members, to help narrow the estimated $40 trillion worth of infrastructure needed in the developing world. However, the project seems to be directed as a rival to China’s Belt and Road Initiative (BRI). Amidst sharp criticism posed against the People’s Republic during the Summit, the B3W initiative appears to be an alternative multi-lateral funding program to the BRI. Yet, the developing world is the least of the concerns for the optimistic model challenging the Asian giant.
While the B3W claims to be a highly cohesive initiative, the BRI has expanded beyond comprehension and would be extremely difficult to dethrone, even when some of the most lucrative economies of the world are joining heads to compete over the largely untapped potential of the region. Now let’s be fair and contest that neither the G7 nor China intends the welfare of the region over profiteering. However, China enjoys a headstart. The BRI was unveiled back in 2013 by president Xi Jinping. The initiative was projected as a transcontinental long-term policy and investment program aimed to consolidate infrastructural development and gear economic integration of the developing countries falling along the route of the historic Silk Road.
The highly sophisticated project is a long-envisioned dream of China’s Communist Party; operating on the premise of dominating the networks between the continents to establish unarguable sovereignty over the regional economic and policy decision-making. Referring to the official outline of the BRI issued by China’s National Development and Reform Commission (NDRC), the BRI drives to: “Promote the connectivity of Asian, European, and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road [Silk Road], set up all-dimensional, multi-tiered and composite connectivity networks and realize diversified, independent, balanced, and sustainable development in these countries”. The excerpt clearly amplifies the thought process and the main agenda of the BRI. On the other hand, the B3W simply stands as a superfluous rival to an already outgrowing program.
Initially known as One Belt One Road (OBOR), the BRI has since expanded in the infrastructural niche of the region, primarily including emerging markets like Pakistan, Bangladesh, and Sri Lanka. The standout feature of the BRI has been the mutually inclusive nature of the projects, that is, the BRI has been commandeering projects in many of the rival countries in the region yet the initiative manages to keep the projects running in parallel without any interference or impediment. With a loose hold on the governance whilst giving a free hand to the political and social realities of each specific country, the BRI program presents a perfect opportunity to jump the bandwagon and obtain funding for development projects without undergoing scrutiny and complications. With such attractive nature of the BRI, the program has significantly grown over the past decade, now hosting 71 countries as partners in the initiative. The BRI currently represents a third of the world’s GDP and approximately two-thirds of the world’s entire population.
Similar to BRI, the B3W aims to congregate cross-national and regional cooperation between the countries involved whilst facilitating the implementation of large-scale projects in the developing world. However, unlike China, the G7 has an array of problems that seem to override the overly optimistic assumption of B3W being the alternate stream to the BRI.
One major contention in the B3W model is the facile assumption that all 7 democracies have an identical policy with respect to China and would therefore react similarly to China’s policies and actions. While the perspective matches the objective of BRI to promote intergovernmental cooperation, the G7 economies are much more polar than the democracies partnered with China. It is rather simplistic to assume that the US and Japan would have a similar stance towards China’s policies, especially when the US has been in a tense trade war with China recently while Japan enjoyed a healthy economic relation with Xi’s regime. It would be a bold statement to conclude that the US and the UK would be more cohesively adjoined towards the B3W relative to the China-Pakistan cooperation towards the BRI. Even when we disregard the years-long partnership between the Asian duo, the newfound initiative would demand more out of the US than the rest of the countries since each country is aware of the tense relations and the underlying desperation that resulted in the B3W program to shape its way in the Summit.
Moreover, the B3W is timed in an era when Europe has seen its history being botched over the past year. Post-Brexit, Europe is exactly the polar opposite of the unified policy-making glorified in the B3W initiate. The European Union (EU), despite US reservations, recently signed an investment deal with China. A symbolic gesture against the role played by former US President Donald J. Trump to bolster the UK’s exit from the Union. As London tumbles into peril, it would rather join hands with China as opposed to the democrat-regime of the US to prevent isolation in the region. Despite US opposition, Germany – Europe’s largest economy – continues to place China as a key market for its Automobile industry. Such a divided partnership holds no threat to the BRI, especially when the partners are highly dependent on China’s market and couldn’t afford an affront to China’s long envisaged initiative.
Even if we assume a unified plan of action shared between the G7 countries, the B3W would fall short in attracting the key developing countries of the region. The main targets of the initiative would naturally be the most promising economies of Asia, namely India, Pakistan, or Bangladesh. However, the BRI has already encapsulated these countries: China-Pakistan Economic Corridor (CPEC) and Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC) being two of the core 6 developmental corridors of BRI.
While both the participatory as well as the targeted democracies would be highly cautious in supporting the B3W over BRI, the newfound initiate lacks the basic tenets of a lasting project let alone standing rival to the likes of BRI. The B3W is aimed to be domestically funded through USAID, EXIM, and other similar programs. However, a project of such complex nature involves investments from diverse funding channels. The BRI, for example, tallies a total volume of roughly USD 4 to 8 trillion. However, the BRI is state-funded and therefore enjoys a variety of funding routes including BRI bond flotation. The B3W, however, simply falls short as up until recently, the large domestic firms and banks in the US have been pushed against by the Biden regime. An accurate example is the recent adjustment of the global corporate tax rate to a minimum of 15% to undercut the power of giants like Google and Amazon. Such strategies would make it impossible for the United States and its G7 counterparts to gain multiple channels of funding compared to the highly leveraged state-backed companies in China.
Furthermore, the B3W’s competitiveness dampens when conditionalities are brought into the picture. On paper, the B3W presents humane conditions including Human Rights preservation, Climate Change, Rule of Law, and Corruption prevention. In reality, however, the targeted countries are riddled with problems in all 4 categories. A straightforward question would be that why would the developing countries, already hard-pressed on funds, invest to improve on the 4 conditions posed by the B3W when they could easily continue to seek benefits from a no-strings-attached funding through BRI?
The B3W, despite being a highly lucrative and prosperous model, is idealistic if presented as a competition to the BRI. Simply because the G7, majorly the United States, elides the ground realities and averts its gaze from the labyrinth of complex relations shared with China. The only good that could be achieved is if the B3W manages to find its own unique identity in the region, separate from BRI in nature and not rivaling the scale of operation. While Biden has remained vocal to assuage the concerns regarding the B3W’s aim to target the trajectory of the BRI, the leaders have remained silent over the detailed operations of the model in the near future. For now, the B3W would await bipartisan approval in the United States as the remaining partners would develop their plan of action. Safe to say, for now, that the B3W won’t hold a candle to the BRI in the long-run but could create problems for the G7 members if it manages to irk China in the Short-run.
COVID-19: New Dynamics to the World’s Politico-Economic Structure
How ironic it is that a virus invisible from a naked human eye can manage to topple down the world and its dynamics. Breaking out of CoronaVirus, its spread across the globe and the diversity of consequences faced by the individual states all make it evident how the dynamics of the world could be reversed in months. Starting from the blame games regarding coronavirus to its geostrategic implications and the entire enigma between COVID-19 and politics, COVID-19 and economies have shaken the world. Whether it is the acclaimed super power, struggling powers or third world states or even individuals, the pandemic has unveiled the capability and credibility of all, especially in political and economic domains. Wearing masks in public, avoiding hand shake and maintaining distance from one another have emerged as ‘new normal’ in the social world of interaction.
Since the pandemic has locked its eyes upon the globe, world politics has taken an unfortunate drift. From the opportunities for leaders to abuse power during state of emergency (which is imposed in different states to limit the spread of novel Coronavirus) to the likelihood of rise of far-right nationalists to the emergence of ‘travel bubbles’ between states (such as New Zealand and Australia) and the increased chances of regionalism in post-pandemic world to the new terrorist strategies to gain support and many others, all are result of the pandemic’s impact on the political world, one way or the other. Since the end of WWII, the United States has taken the role of global leadership and after the Cold War, it became more prominent as it was the sole superpower of the world. Talking ideally, pandemics are perceived to bring up global cooperation but in the COVID-19 scenario it has started a whole new set of debates, sparkled nativism versus globalization and the sharp divide in global politics has drifted the focus from overcoming the global pandemic through global response to inward looking policies of leaders.
Covid-19 has impacted every sphere of life, be it social, political, health or economic. The pandemic itself being the result of a globalized world has affected globalization badly. It is the best illustration of the interrelation of politics and economics and how the steps in one sector impact the other in this interdependent, globalized world. Political actions such as restricting travel had drastic economic impacts especially to the countries whose economy is largely dependent on tourism, foreign investment etc. Similarly, economic actions such as limiting foreign products’ access had political implications in the form of sudden unemployment and downturn in living standards of people.
For the first time in history, oil prices became negative when its demand suddenly dropped when industries were shut down almost everywhere. Russia and Saudi Arabia’s oil clash which led to increased oil production by Saudi Arabia further complicated the situation. This unprecedented drop in oil demand and consequently its price would only help in the economic recovery of countries. Covid-19 has impacted three sectors badly. First of all, it affected production as global manufacturing has declined due to decrease in demand. Secondly, it has created supply chain and market disruption. Finally, lockdowns affected local businesses everywhere. Bad impact aside, pandemic has led to the change in demand of products. Instead of investment and foreign trade, states having strong medical and textiles industries have got the opportunity of increasing exports. This is because there are requirements of face masks everywhere to avoid contagion. Need for medical instruments have also increased such as ventilators in developing countries specially.
The only positive impact of Coronavirus is that it fostered environmental cleanliness. It is said that it can avert a climate emergency but the fact is that, as soon as the lockdown will be eased and businesses will begin returning into functioning, economic growth and prosperity will be prioritized over sustainability and we might even witness, more than ever, carbon emissions into the atmosphere.
Novel coronavirus has brought new dynamics to the world’s politico-economic structure. While the world has the opportunity to come close for cooperation and consensus to fight it, we might witness increased regionalism in the post-pandemic world as a cautious measure and alternative where crisis management would be more cooperative and quick. There is a likelihood of the emergence of an international treaty or regime to ban bio-weapons. While the prevalence of political optimism is not assured in the post-pandemic world, we are likely to see the interdependent economic world, as before, to overcome the economic slump and revive the global economy.
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