The Covid-19 pandemic, the severe economic recession, and increasing debt burdens represent a triad of global crises. The pressure of the crunch is mounting despite the availability of solutions and resources. So, what are the solutions to such problems? And will 2021 witness a breakthrough in international cooperation after years of tension, isolationism, protectionism, and various populist calls?
The US and European leaderships have changed, and optimism now prevails that the US will return to multilateral international tracks. It has been announced that the US will rejoin the Paris Agreement on Climate Change and that the World Health Organisation (WHO) will again receive its support and financial aid. Furthermore, a prominent African figure now presides over the World Trade Organisation (WTO) with hopes for unlocking its frozen dispute-settlement mechanism.
This month, Mario Draghi was appointed the new prime minister of Italy, and the country will also head this year’s G20 Summit meeting. Draghi gave a speech a few days ago revealing the priorities of his government, which favour the interests of Europe and not only of Italy alone in reformulating international relations, especially with the US, China, and Russia.
The move led a number of political analysts, including Melvyn Krauss, an emeritus professor of economics at New York University in the US, to discuss the emergence of a new “European triangle” made up of Italy, Germany, and France. The latter two countries have spearheaded efforts to revive the European Union (EU) following the Brexit crisis.
Draghi is famous for his powerful words and for his efforts to implement them. It was he who in July 2012 uttered the famous words “whatever it takes” when he was president of the European Central Bank. Draghi revealed his intention to defend the euro, speculated against in the markets, through a programme of purchasing EU government bonds. Thanks to the credibility of the institution he headed and his disciplined policy of protecting the euro, Draghi succeeded in calming the financial markets.
Today, the Italian economy is still fragile in the aftermath of the coronavirus pandemic. If Draghi manages to control the health repercussions of the coronavirus, it should take two years at least for Italy’s GDP to bounce back to pre-pandemic levels. However, the Italian government’s endeavours to bring about internal reform will also adopt a European approach, evident when Draghi said that “without Italy there is no Europe.”
He did not overlook the importance of transatlantic relations in restoring Italy’s traditional alliance with the US in contrast to steps taken by his predecessor, Giuseppe Conte, in establishing a rapprochement with China. Draghi renewed the bonds of European-US cooperation after the US under new president Joe Biden announced its return to its traditional alliances.
Returning to the triad of global crises, the common factor linking the European and US administrations remains their inward looking domestic focus, with there being barely a hint of attention given to what is taking place outside their borders.
The world’s developed and richer countries should be praised for allocating an average of more than 10 per cent of their national incomes to support their economies and citizens affected by the repercussions of Covid-19. The EU allocated about $2.2 trillion for financial-stimulus packages for the post-pandemic economy, financed collectively through its central budget. This was also the case on a larger scale with the US federal budget over the past year.
The US will maintain the same approach this year until the signs of recovery become clear, despite the debate over the cost of the facilitation packages it has introduced along with their effectiveness and beneficiaries.
Meanwhile, the deteriorating budgets of the developing countries have restricted the ability of their governments to respond to the repercussions of the crisis.
Emergency public spending in many such countries has not exceeded one per cent of national income. Debt burdens and weak sovereign credit ratings have prevented them from engaging in the kind of inexpensive borrowing enjoyed by the developed countries.
Some countries enjoy money for free because interest rates are close to zero on their bonds. However, the developing countries have to acquire loans at an exorbitant cost, and the money they pour into the financial markets returns about the same amount in the absence of lenders or investors in their bonds.
As growth rates decline, unemployment increases, with little or no benefit to the unemployed. The income gap between the developed and developing countries is growing wider after having seen periods in which the gap was narrower due to rising growth in the lower-income countries.
Should they wish to do so, the developed countries could help in solving the conundrum of this triad of global crises by adopting a host of urgent measures before the middle of this year. Meanwhile, with each passing day some of the poorest people in the world are paying with their lives, not their livelihoods, for their lack of facilities.
The first urgent measure is to facilitate equitable access to a coronavirus vaccine. The developed countries have signed deals with vaccine-producing companies and have been indifferent to the needs of the WHO’s COVAX facility run for the benefit of the poorest countries. Some of the developed countries have reserved stocks of vaccines that exceed their populations several times over.
Perhaps the developed countries will listen to the advice of seven scientists specialising in viral diseases. These scientists published an article this month in the widely circulated medical journal The Lancet on the scientific imperatives behind the fair distribution of the Covid-19 vaccine worldwide, urging that its production should be increased and its roll-out speeded up and that it should be made available without financial or logistical obstacles in order to curb the spread of the coronavirus.
Otherwise, the benefits of the scientific victory of speedily developing approved vaccines against Covid-19 will be wasted for political and administrative reasons. The developed countries may still respond to the demands of the developing countries, submitted to the WTO in October, in order to facilitate their obtaining the necessary licences to produce vaccines and treatments.
The second urgent measure is to put the brakes on the exacerbation of debt problems in the developing countries in order to prevent these from turning into a global crisis. It is necessary to extend the grace period for deferring the debt payments of the poorest countries, planned to end in June, for another year. A comprehensive practical approach should also be introduced so that the developing countries can benefit from the debt-management framework recommended by the G20 and include private-sector lenders in its implementation.
The transparency of data disclosure by lenders and borrowers should be stressed, and there should be cooperation in developing the system for managing external sovereign debts and mechanisms for resolving debt disputes. Fair standards should be introduced to negotiate their settlement, and a means for technical cooperation should be introduced, especially for debt swaps, in the light of proposals to link debt to climate change.
The third urgent measure is to review the sustainable development financing framework and its implementation, starting with investments in economic recovery and in order to avoid recession. This requires going beyond the traditional approach to development aid, whose value and influence have diminished with its declining flows to the point that financial outflows from the African continent have exceeded what it receives from foreign aid and investment.
Perhaps the most important test of international cooperation in this regard is to bring forward the expected increase in the International Monetary Fund’s (IMF) special drawing rights in order to facilitate the developing countries’ access to the foreign currency they need.
These measures to address the triad of global crises require financing and political will on the part of the developed countries. It is easy to wax lyrical about international cooperation and seeking prosperity, peace, and stability for humanity. However, such words are meaningless until they are translated into state budgets.
An Arabic version of this article appeared on Wednesday in Asharq Al-Awsat.
*A version of this article appears in print in the 25 February, 2021 edition of Al-Ahram Weekly