Tribune . A recession! This is the new worry in Europe and the United States. It is difficult to assess in real time whether a recession is indeed occurring, but there is no doubt about the existence of significant risks, such as the trade war and the "no deal" of the country. British Brexit.
For European finance ministers, this is a new challenge. In the past, when a major recession occurred, they knew that the European Central Bank (ECB) would be the first line of defense. But today, with zero interest rates, the ECB's room for maneuver is very limited. It could certainly revive an asset purchase program, push further into the negative its short-term interest rate, but the reality is that its ability to control inflation and manage the business cycle is extremely limited to this stage.Article reserved for our subscribers Read also The four challenges of the euro zone
Former Vice President of the ECB, Vitor Constancio, acknowledged on August 22 on his Twitter account that it was a "theoretical myth that under all circumstances monetary policy alone can control inflation at will . In a similar vein, Larry Summers, former US Treasury Secretary and Harvard Professor of Economics, also on Twitter on the same date, says structural and fiscal policies are now the primary means of action .
This definitely puts the ball in the camp of European finance ministers. But to succeed, they must fundamentally change their mentality.
Concrete spending plans and tax cuts
It is not enough to rely on automatic stabilizers, such as unemployment benefits or income tax, as Jens Weidmann, President of the Bundesbank, has suggested in an interview on August 24th with the weekly Frankfurter Allgemeine. Sonntagszeitung ( FAZ ), reported by Reuters.
These mechanisms passively regulate economic cycles and mitigate a slowdown, but they intervene too late, once workers have already lost their jobs. They alone are not enough to cope with a recession.
It's time to move from responsive fiscal policy to proactive fiscal policy