Ashoka Mody for PS Say More

The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( Welcome to Say More, a weekly newsletter offering readers exclusive insights into the ideas, interests, and personalities of some of the world’s leading thinkers. In each issue, a Project Syndicate contributor is invited to expand on topics covered in their commentaries, address new issues, and share recommendations about everything from books and recordings to hobbies and social media. This week, PS talks with Ashoka Mody, Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs at Princeton University. To read the full interview – in which Mody shows why the EU recovery fund is too little too late, praises the IMF’s newfound intellectual independence, and discusses the far-reaching consequences of inequality-induced apathy – [click here](. Ashoka Mody Says More… Project Syndicate[Ashoka Mody]( Last September, you [warned]( that further monetary stimulus measures by the European Central Bank “will either amount to less than anticipated or will not be sustained – yet it could still undermine the eurozone’s financial system and public finances in far-reaching ways.” Since then, the COVID-19 pandemic has spurred sharp monetary expansion by the ECB. How do you rate its actions? What measures would be more effective, not only to prop up Europe’s economy, but also to protect the viability of eurozone banks? Ashoka Mody: The ECB will face major tests in the next six months. Fiscal deficits in Italy and Spain are rising rapidly, and their economies have contracted substantially. Their debt-to-GDP ratios are skyrocketing – a process that would be accelerated further by a slower-than-anticipated economic recovery. To avoid disaster, the ECB will need to make large debt purchases from these countries, especially Italy – so large that the ECB could effectively “own” the country. The risk of an Italian default will raise a very difficult political challenge for the fiscally conservative “northern” countries on the ECB’s Governing Council. As for banks, their chronically low profitability is suffering as a result of the ECB’s negative interest rates, which are needed to prop up the eurozone economy. The ECB helps to some extent by subsidizing the banks. But what the banks really need are higher interest rates. This creates a serious dilemma for the ECB. PS: You were [sounding the alarm]( about the crisis risk Italy poses back in April 2019, citing factors like zero – possibly negative – productivity growth, and a high debt-to-GDP ratio.” The pandemic has placed such concerns on the back burner, if not rendered them moot. Could the COVID-19 crisis be an opportunity for a comprehensive policy reset for Italy and other struggling EU countries? AM: Italy’s debt-to-GDP ratio may be getting less attention now, but the risks are only growing. From the time it joined the eurozone in 1999, Italy has suffered from poor productivity growth, resulting in persistently low economic growth and rising-debt-to-GDP ratios. The COVID-19-induced economic standstill will exacerbate this long-standing problem. Given that Italy’s structural problems have built up over a generation, it will take another generation to correct them – and that is if the Italian authorities get to work right away. The COVID-19 crisis could well provide the impetus to start anew, though this is far from guaranteed. I do hope that Italy can break from its past. PS: More broadly, does Germany’s more dovish stance on debt mutualization and fiscal transfers, reflected in its support for the €750 billion ($884 billion) EU recovery plan, give you hope for a rethink of the EU’s “absurd” budget rules? What exactly needs to be rethought, and which changes are essential? AM: The new recovery fund is a step in the right direction. That said... [Continue reading]( [Draghi’s Dangerous Farewell]( [Draghi’s Dangerous Farewell]( By Ashoka Mody The risks of further monetary stimulus measures by the European Central Bank outweigh the benefits. Additional stimulus will either amount to less than anticipated or will not be sustained – yet it could still undermine the eurozone's financial system and public finances in far-reaching ways. Previously in Say More [Robert Muggah]( – a co-founder of the SecDev Group and the Igarapé Institute – assesses Brazilian President Jair Bolsonaro’s prospects, offers recommendations for tackling police violence, and touts the potential of data-visualization tools. [Read more](. [Helmut K. Anheier]( – former Professor of Sociology at the Hertie School of Governance in Berlin, Professor Emeritus at Heidelberg University’s Max Weber Institute, and a faculty member at UCLA’s Luskin School of Public Affairs – proposes a strategy for a people’s globalization, offers lessons from Germany for countries reckoning with their own histories of racism, and outlines an agenda for Germany’s EU Council presidency. [Read more](. [Check out the full Say More archive]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. This newsletter is a service of [Project Syndicate](. [Change your newsletter preferences](. Follow us on [Facebook]( [Twitter]( and [YouTube](. © Project Syndicate, all rights reserved. [Unsubscribe from all newsletters](.