Nicolas Goetzmann: "The time for accountants is over, let's dare a policy of massive recovery!"

Nicolas Goetzmann is responsible for research and macroeconomic strategy at Financière de la Cité.

FIGAROVOX.- During his address on March 12, the President of the Republic unveiled several measures to deal with the economic aspect of the crisis, while announcing a future recovery plan. What could be an effective recovery strategy, first at the national level?

Nicolas GOETZMANN.- Emmanuel Macron and the government are for the moment in a logic of correcting the effects of the crisis which has just gripped the French economy. It is about treating evil. This is absolutely necessary, particularly with regard to assistance to businesses or the treatment of the issue of partial unemployment, but there is a complementary way of acting very quickly and very effectively on the situation. It is simply to send checks to the French. We will have a large deficit for this year 2020, this is already a certainty, the goal of such an approach is to ensure that its cause is not a decrease in tax revenues, but an increase in spending, which would testify to 'upstream processing and helps limit the fall in GDP.

The American economist Claudia Sahm, has been analyzing for more than 10 years the effectiveness of the various stimulus plans (tax cuts and others) and teaches us that the most efficient and quickest way, politically the strongest - and therefore susceptible to create the necessary psychological shock - is that the administration sends checks to the population. The challenge is to act very quickly to have a preventive impact on the crisis. If Bercy decides on Monday to send a sum of 500 euros to each French, 2000 euros for a family of 4, which represents a total cost of 33.5 billion euros or 1.38% of the country's GDP, it is a shock that is addressed to the French economy. It should also be remembered that the interest rates paid by the State are still slightly negative, the cost of borrowing is therefore zero.

Paradoxically it is the madness appearance of such a measure which is its strength and which gives it its credibility. The signal given to the financial markets is that the time of accountants is over and that the country will not let it go. In this way the government shows that it is indeed "ready for anything" to contain the crisis, more is called to Roosevelt than to "reason", simply because the power of the current crisis is exceptional, and calls for an exceptional response. If it is obvious that such a measure is imperfect, because some households will choose to save the amount received, that blockages will limit spending capacity, that many goods bought will be imported, or that some goods are not no longer available due to the breakdown of production chains, it remains the most effective measure in its simplicity and strength. In case of blocking of the country, the expenses will take place right after, which allows a brutal recovery.

It is all the same to make available to household consumption more than 33 billion euros, all at once. A political speech of national cohesion can be added to this announcement, encourage the French to spend the amount in question, to support the economy of the country, the traders around them, and above all, deliver a message of action. The real objective is to strongly support the economy before the crisis, to give an impetus that can modify the decisions of companies regarding the upcoming redundancies. What is spent now avoids future spending on unemployment benefits and business support.

The other aspects of the treatment of the crisis, in particular the obvious support - without limit - which must be allotted to the health services, or the insurance of financing of the companies, partial unemployment, etc ... seem, it is necessary hope, already taken into account by the executive. We must not delude ourselves, the magnitude of the current crisis can already cause a widening of the deficit of the order of 4 to 5 points of GDP, or a hundred billion euros. Do not hesitate to be unreasonable to deal with the crisis, it is the best way to face it.

Emmanuel Macron also indicated that he wanted to act at European level but also through the G7. What would be the measures here?

Unfortunately, we have to take the past into account, and consider that the European scale has not been up to the situation in recent years. A first response will be issued this Monday, March 16 following the holding of the Eurogroup meeting, the ambition of which would be to deliver a coordinated budgetary plan at European level. In this context, it would no doubt be more effective for France to take the lead in putting other countries politically on the wall. The time for slow negotiations is over, it is a question of forcing things, which can only really take place at the instigation of a country.

Emmanuel Macron also indicated that he wanted to include the issue in the framework of the G7, which is led by the United States for this year 2020. This framework has significant potential. On the one hand on a budgetary coordination of the large liberal democracies, and a particular consideration of Italy which is a member country. On the other hand, and here we reach the heart of the reactor concerning the treatment of the crisis, the G7 can be the enclosure of a coordinated approach of the big central banks. Because we must not delude ourselves, budget support - and this must be massive - will not be enough even if it is useful in short-term issues, it is the central banks that remain the absolute weapon.

Even before the Covid-19 crisis occurred, the European Central Bank, the United States Federal Reserve, but also the Bank of Canada, were busy with what is called a "monetary policy review" whose objective was to redirect their strategy following past mistakes. There is therefore an opportunity, which must absolutely be seized, for the result of these reviews to be coordinated between the various central banks towards a strategy more favorable to growth and employment. We are not talking here of an adjustment at the margin, but of a major structural change in an economic policy that has taken hold in our countries since the early 1980s. The challenge is to redirect central banks towards growth while they have been obsessed with inflation for 40 years. The result is that we have no more inflation, no more growth either, and that we are therefore in situations of great vulnerability when a crisis occurs. International coordination on this point would then be a major change, a real change of era. The Federal Reserve of the United States already seems ready for such a development, it is therefore necessary to exert a strong pressure on the authorities of the ECB - on Germany (but also France) - to obtain such a disruption of the share of the most rigorous Central Bank on the planet.

In the longer term, and in particular on the point raised by Emmanuel Macron, namely the “takeover”, what are the solutions that could be offered to us?

It is already interesting to note that the Covid-19 crisis acts as a call to order for politicians who are beginning to listen to the developments in the economic consensus that has taken place for several years. Public spending is useful and must be reconsidered in its strategic role in the service of States. When we look at the pharmaceutical, food and digital sectors, it is obvious that States will no longer be able to do as before, by relocating, or by relying on other countries.

More specifically, we must also ask ourselves the question of our trade relations with China, by agreeing to see the geopolitical ambitions of the country. The hope of entering the Chinese market, which is, in part, a pipe dream, cannot justify everything. The change of logic is ultimately simple, it is no longer to consider free trade as an end, but as the means of the development of a State which is obviously part of a strategy of power. In other words, the political regains control of the economy.