Welfens, P.J.J.: Corona World Recession and Health System Crisis: Shocks Not Understood So Far

Welfens, P. J.J.: Corona World Recession and Health System Crisis: Shocks Not Understood So Far

JEL classification: F00, F02, I18

Key words: Corona World Recession, US, EU Integration, Health System, Eurobonds, German Constitutional Court


The Coronavirus World Recession is a global symmetric shock that will cause serious problems in both the US and the Eurozone. For the Trump Administration, the lack of qualified staff is a serious issue in the field of international policy coordination and developing adequate anti-coronavirus pandemic strategies. For the first time, US leadership is not visible during a major international economic crisis. In Europe, the Eurozone is facing serious problems as a “Euro Crisis 2” looms: Inflexibility on the part of both Germany and Italy are contributing to new risks, including a potential “Italexit” and a deepening of the coronavirus recession. While a simple Eurobonds approach is not feasible in the Eurozone, an innovative Joint Eurobonds (JEBs) strategy – with partial collateral and a JEBs fund (JEF) outside the institutional framework of the EU – could help to avoid a new Euro Crisis and to bring a faster EU recovery than in the United States; the proposed JEF would operate on the basis of pre-defined menu options from which JEF member countries could choose, with unanimous voting and based on the respective requirements of national parliaments, to give a green light to the new framework approach. Germany, which holds the rotating EU presidency in the second half of 2020, faces enormous responsibility, but is hesitant to give up its traditional resistance against the mutualization of bonds in the EU. The EU’s recovery and loan package are unlikely to work as intended – amongst other things, the impact of the European Investment Bank loan package is likely to be much smaller than the European Commission seems to be believe. The suggested JEBs-oriented Quantitative Easing strategy would be consistent with the requirements of the verdict handed down by Germany’s Constitutional Court on May 5, 2020 – concerning the European Central Bank’s Public Sector Purchase Programme.

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