The Covid-19 Medical Emergency is an Unprecedented Crisis, but it is the economic fallout that should truly petrify us all

I’ve had a few heated debates in the past few days about how I appear to care more about the economic fallout of Covid-19 than the mounting death toll from the virus itself.

Of course I care, and especially about the looming global health system crises too. But looking to the bigger picture, I also know that in the long-run, for better or for worse, this virus will be under control in a about a year’s time. Whereas the economic fallout, and by extension the social and political fallout could last decades.

I have taken to often reminding people that no-one really talks or remembers the 2003 European heatwave that, by some estimates, killed 70,000 people – and mainly older folk. After only 17 years it has been largely become an archival footnote in history. 

But we all still know and collectively remember what happened to an economically crippled Germany way back in 1930’s. The fallout from which – be it the Cold War up to the fall of the Berlin Wall in ‘89 or the Israeli-Palestinian conflict that continues to this very day, we still feel its impact.

For years now I have repeated the mantra that we are one crisis away from a complete socio-political and economic catastrophe.

We face serious danger from this crisis that threatens our already weak socio-political order.

Our global economic systems are far weaker than in 2008: Household and especially corporate debt levels were flashing red before Covid-19 hit:

According to an IMF report last year that looked at the corporate debt situation in 8 countries – including US, China, Japan and several European nations, a financial crisis only half as severe as the one in ’08 could push as many as 40% of companies to default on their debts. 

Largely as a result of the financial crisis back then, there are also few macroeconomic tools left in the arsenal.  What with interest rates already at unprecedented lows and many developed countries already severely leveraged:  According to OECD (Organisation for Economic Cooperation & Development – a Paris-based think-tank), 34 of the world’s richest nations borrowed US$11.4tn by end-2019 – an actual increase from US$10.9tn in the years directly following the financial crisis. 

And all this before covid-19. 

With growth rates already increasing at a snail’s pace during the last decade and with recession looming – a day of reckoning with the record debt levels across all sectors of the economy may come sooner rather than later.

All this is coupled by the fact that the international will to combat the covid-19 inspired downturn is at its lowest ebb in decades – witness the oil output tug of war between Saudi Arabia and Russia – or the lack of assistance given to Italy by fellow EU countries in their hour of need (in the end China came to its rescue with medical supplies), and that is just the start of it all. We live in a geo-political climate where cooperation has turned to trade wars and mutual suspicion – largely brought on by the last crisis. 

While it is essential to highlight the dangers and the damage that the virus is currently wreaking on people and our health care systems, it is important to maintain perspective and realise that our doom lies not in the medical fight that will be relatively short-term, but the fight to steer us away from economic disaster this virus will cause.

We all ignore it at our peril.

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