Tsunami blows away the shibboleths
Action to back up ‘do what it takes’
Governments around the globe have shown money can be conjured to virtually any extent possible, if there is an overwhelming need to do so. It is a vindication of what was called the ‘modern money tree’ argument. Monetarism, the old fear that too much money will cause inflation, is dead.
Germany is showing the way. Practically overnight the balanced-budget shibboleth has been dropped. Chancellor Angela Merkel (quarantined herself over Covid-19 fears) on 23 March introduced a €156bn supplementary budget (nearly 5% of GDP), containing €222.5bn of extra spending, to offset a dramatic fall in output and a slump in tax revenues. On top is a three-pronged ‘economic stabilisation fund’ made up of a ‘recapitalisation instrument’ funded by up to €100bn in government debt to invest in hard-pressed companies; guarantees of up to €400bn backing the KfW state development bank covering corporate debt securities; and an authorisation to provide up to €100bn of financing to KfW to fund unlimited loan programmes. In addition comes €50bn of targeted help for 3m small companies.
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Πηγή: omfif.org
