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Who will pay the bill? – Covid Thriller

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Recession, job losses, economic slowdown, debt to GDP ratios, inflation … you couldn’t have missed these ancient Greek words lately while watching the news or reading the financial paper. COVID-19 has exposed the public to an unprecedented financial jargon that challenges the most financially savvy citizen. Through this article, I try to undress the current economic events and their direct impacts on the world (us) as we know it today.

Photo by Dorrell Tibbs

Photo by Dorrell Tibbs

We all know it,  there is not such a thing as a free lunch. So, whenever we get one, the main question should be who will pay the bill? In addition, a smart thinker should be wondering how to protect himself from the so-called new norms, identified by Klaus Schwab as “the great reset”.

This looks like a cycle, a vicious cycle that has the tendency to come back every 8 or 10 years.

The Cycle

Although the world is facing a tremendous sanitary situation and COVID-19 being the scary face, let’s agree on one point here _ the world is in a quite bad shape economically and the current pandemic is simply a catalyst.

…What happens when you shift from the 3rd gear to the  5th one … the car goes faster. We actually lost control of the car.

The current economic malaise is unfortunately not just a road accident but an accumulation of sophisticated sabotages laid on the road. The earliest most relevant wreckages (if we focus on the post WW2 period) can be traced back to 1971 (the drive then, Robert Nixon decided to abandon the gold standard); by then someone burned the traffic lights in 1980 (Reagan & Margaret were on the steering wheel pushing the deregulation of the financial markets); straight after, we hit the side lane in 1989 (with Japanese financial crisis introducing the secular debt circle); so in the end, we got arrested for alcohol influence while driving in 2008 (subprime crisis).

Photo by Markus Winkler

Photo by Markus Winkler

All these events have 3 things in common: a considerable amount of people losing their jobs _ together with their biggest assets (their homes), the purchasing power drops to the floor (inflation), the technological innovations ensure that it becomes challenging to retrieve the same job (even for less money), And most importantly a strange addiction to DEBT.

This looks like a cycle, a vicious cycle that has the tendency to come back every 8 or 10 years.

Where are we now?

Since 2008’s financial crisis, Europe has accumulated an unprecedented amount of debt. At first in order to save the banks that were exposed to the financial crash started in the US, thereafter, to kick-start its economies devastated by the recession that followed.

I will dare to say something not mentioned enough even among European leaders, not all European countries move at the same pace nor have the same tradition and relationship when it comes to economic management. We even invented two discourteous terms to qualify the side of EU countries considered disciplined and those undisciplined [pigs vs frugal countries]. The real concern is that the current EU structure expects the Portuguese to become Germans and the Greeks Swedish. Complete nonsense _ since these countries with different historical and cultural backgrounds, and geographically dissimilar. 

Put simply, with an uncompetitive economy (as many of the EU economies are _ not only South European ones), an unparalleled debt burden (accumulated throughout time [figure1]), and a global pandemic that has destroyed most of the EU economies, there is a fundamental question one should be asking. How much it is going to cost, and who will pay the bill?

[figure1]: Source Eurostat _ Second quarter of 2020 compared with first quarter of 2020.

[figure1]: Source Eurostat _ Second quarter of 2020 compared with first quarter of 2020.

The COVID19 thriller:

Although I’m not a medical professional nor a physician, however, there is a clear observation one can make after the stops and gos, lockdowns, curfews (…) we went through since early March 2020 _ WE ARE NOT PREPARED, and my Ghanaian friend would say “the system is not working” (with the accent) 😉

The perfect illustration comes from the inability of EU countries to produce simple widgets such as masks and to organize their distribution. The French government, for instance, had its supply order of masks swooped by an unidentified American buyer who simply bided high price and took the order from the French (no French jokes here).

Sadly, France wasn’t the only one missing their mask delivery. The point here is to unveil a flabbergasted reality, an industrialized country such as France is no longer able to fabricate masks. This is the case in many sectors whereby Europe and the US just don’t dominate any longer. And, as a consequence, Europe has lost its ability to create jobs in these sectors as well as to control underneath technology [figure2], and most importantly to protect its people against unexpected shocks such as the COVID-19 outbreak.

[figure2]: The Library of Economics and Liberty - Europe has a massive and growing trade surplus, and is hemorrhaging manufacturing jobs. By Scott Sumner

[figure2]: The Library of Economics and Liberty – Europe has a massive and growing trade surplus, and is hemorrhaging manufacturing jobs. By Scott Sumner

Who will pay the bill

“But there is another message I want to tell you,” silence in the room…“Within our mandate, within our mandate, the ECB is ready to do whatever it takes to preserve the euro.”  These are words from the highly talented Mario Draghi (super Mario for the homies) in 2012 during the EU crisis. And talking about whatever it takes, he really meant it.

Deep in the Euro crisis, the Euro-zone has faced unprecedented austerity measures _ a much more sexy word to say budget cuts. But who are really the victims of these austerity measures? You and me. How? Through inflation, public goods and services rationing, fewer investments in education and healthcare, and the list goes on…

The above was already felt by many European countries. Although the trend has been to the low, for the last 10 years Spain hasn’t been able to show an unemployment rate below 10% _ currently at 16.13 from a record high of 26.94. The picture is not any better in France; a serious case study since it has a toxic relationship with unemployment for 30 years _ currently at 8.00 from a record high of 10.80 in 2013.

In July 2020, the newly appointed President of the European Commission, Mrs. Ursula von der Leyen announced a shocking stimulus package ever financed through the EU budget of €1.85 trillion (trillion with T) to boost the recovery of the Euro-zone heavily damaged by the COVID-19 outbreak; Just like Mario in 2012, Ursula did it [here].

As we know by now, there is not such a thing as a free lunch _ so, the question is, who will pay the bill? You and I  and how? I trust by now you all will be able to answer that question. If not, then read this article again.

Portugal Unemployment Rate

France Unemployment Rate

By Jana Randow and Alessandro Speciale. November 27, 2018

By Jana Randow and Alessandro Speciale. November 27, 2018

In my next article, I will elaborate on the strategies you put in place in order to protect yourself and your family from the upcoming economic disasters to come

written by – Sng

Stephane-Thierry Ngali was born in France and has been from an early age exposed to the diversity of the world and the value of traditions as the anchor of a nation’s spirit. Together with his father, Stephane-Thierry travelled across 13 African countries where he had the privilege to understand and experience the intrinsic value of the African approach to life’s tenet. Graduated in international business & finance, Stephane-Thierry had the opportunity to acquire in-depth knowledge in global finance and European wealth systems. Stephane-Thierry lives in Amsterdam and works for a cloud provider as a strategic business development manager.

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