 Great, so it's a couple of months past noon here in the UK, so good afternoon to everyone and I hope that's fine that we start. So my name is Alberto Square, I'm the director of SAFE in SOS University of London and I'm delighted here to have organized this event together with our guest. So the topic is on the way to post-pandemic economic and financial recovery. The idea is that many countries, as we know, still struggle with COVID-19 pandemic. Some of them are very cautiously lifting up lockdown restrictions, but especially the focus here is with economic and financial heritage from this pandemic. So the drop of business activity, increase of budget deficits, the surge of public debt, these are all features of a challenging scenario for policymakers, central bankers, for the public in the future. I'm delighted to have you here with us today, Sebastien Couchard, senior advisor to the EU parliament and G20 presidencies. Thank you, thank you very much for being here with us today. As anticipated, I can start with a few questions and then we can open the floor to all the participants. Just a very simple one, I just introduced you very quickly, Sebastien. If you'd like to say more about yourself and to share something about your background expertise and the current activity. Thank you, I'm a French citizen, however I lived abroad, I mean, outside of France, I think, probably like 80, 80% of my life, I was living probably like in 15 different countries in several continents. So I would say I'm quite de facto globalized. I was trained as an economist, an econometrician, however I walked, I was a little bit like in the forecasting at the ministry of French means of finance, but I worked in policymaking most of my life, whatever we've been, public administrations or international organizations or as the government affairs for banks, for French bank and then the Greek bank during the Greek latest financial crisis of 2015. And as you mentioned, I was advising a number of European parliament this past year and I am currently in Saudi Arabia working for the G20 presidency by Saudi Arabia this year. So I'm physically calling you from Riyadh right now. Sometime soon you will have the call for prayer, you will probably hear on the video. So I think that's it, I'm 50 years old, so I already have more than 25 years of career and I saw many financial crises already, what do you think was the next one? Well, thank you for sharing this and probably you can say more in a few minutes about what you think is very special of this crisis because the first question then to progress is this pandemic has shaken the world in ways we are still, which are not still fully manifested. So what do you think the main legacy of this pandemic will be on countries economies and finance? To be honest, it is quite right now I would say that we are still in total uncertainty. Your question is very relevant and actually like, you know, we are working for Ministers of Finance and Central Bank Governors and they are impatient, they are like politicians, top declocats and they want already to think about the exit strategies and about the lessons learned from the crisis. But we are still deep in the crisis and we do not know yet actually if we reach a bottom or not. Personally, in terms of purely epidemics, that's a personal opinion, not a professional one. But I think we are not to expect the so-called second way. Like the virus is strictly following where we have precise data as a combination in countries it's precisely following a ghost curve. We saw very clear ghost curve, you know, like this bell shape curve. We saw a perfect shape in Italy, for instance, in Germany, in Spain, we see a nice ghost curve in the UK as well. In countries which are of bigger, I would say continental shape like the US, Russia, the shape of the curve is not as nice because actually there is like a multiplicity of ghost curves in several states and you don't have the same temporality of them. So it seems very second way but actually it's the same which is multiplied. So basically the epidemics and actually like epidemiologists were forecasting in France for instance that end of May basically 99% of people who should have been contaminated would have already been contaminated so it was time to stop the lockdown. So again, I think we will not have second way but still we do not know actually it's very difficult to appreciate the full impact of what we got already. It's a little bit difficult to estimate the so-called hysteresis effect, what will be like the differential effect on societies and economies according to the type of jobs, etc. And again, there is still this Damocles word of like possibility of return of lockdowns, which is a little bit of a return of the virus. So all we say, this is definitely the worst crisis in terms of pure statistics I would say, but the world experience since economic statistics exist, I would say since 200 years like let's not speak of 18th century because there were still like plagues events but in the past 200 years in time of peace that's definitely the worst economic crisis we got. For instance, like the global financial crisis of 2007, 2008 until the eurozone crisis of 2010, 2011, 2012, I mean the global GDP at the worst was in minus I would say 2% something for like two quarters consecutive. Right now only the first quarter of 2020 we were at minus 3% and for the global economy and for the second quarter we will be probably at something like minus 10%, 11%. Just these two quarters already totally dwarf the global financial crisis. So indeed the impacts will be long lasting, like even the most optimist forecast consider you know there was always debate about the V shape recovery like people were saying look we are locking down everyone but as soon as we reopen everything will start like before. But of course it is not the case because you have like sectors which will be very impacted most obviously like transportation, tourism, collective entertainment, like restaurants etc. I mean people will have different consuming patterns and basically as soon as you stop the lockdowns like things start fast in some sectors but in some of us it will take years to come back to some normal level if it comes back. Basically the most optimistic forecast for the global economy basically are telling us that at the beginning of 2022 we will still be lower, we will still have a lower global GDP that we were having at the end of 2019. And this is again like a macro view I would say but if you like detail if you enter into sectors and if you enter into the slices of the population of the people according to their qualification type of job etc. Some will be in very difficult situation basically like we saw during the lockdown like you, me and our listeners today can work on a remote basis but people who were working in factories they could not do remote working. People who were already I would say in the less wealthy parts of societies were the most impacted. This like for instance people who work in bars, restaurants etc. who change up regularly, gig economy etc. These ones were the most impacted. So for very to last less long we will have a kind of recovery but for people who were working in small-medium enterprises who got bankrupt or who will get soon bankrupt because of the lockdown for very to be very in some cases very difficult to find back some economic footing. All in all I would say there will be a hysteresis effect. It will not come back like it was before unfortunately and then it will all depend on the I think on the public policies which will be taken and the resolution I mean the resolve of these policies and if they are decisive enough and if the ideology is not like impeaching them to achieve what they should achieve I think really should continue to push for a very strong support I would say continued shielding of the household and companies by the government and central banks and this support should not be tapered, should not be withdrawn too early. We have to be very cautious but like I would say although liberal thinking is not making us make the same mistake globally than we did at the last financial crisis when basically government started to consolidate their public finances and started to be focused on that reduction too early and central banks started to raise rates and stop a set of purchasing etc. But I don't have an answer to your question. Well thank you. I just have a small follow up question as if I try and distinguish between the real economy where I believe we will experience a very slow painful recovery also because of all the rigidities to relocate the skills and capital for instance from one industry to another one. Even if we think for a while about the financial sector instead financial sector comes to mind it can be much more exposed to sudden swings. So do you think within the uncertainty in the future there could be additional risks posed by further like a short financial crisis because of like accumulation of losses in companies for banks and then suddenly they can pop up in a very dramatic dramatic way. Yes I mean definitely you're touching a very sensitive point because basically we observe I would say kind of like exuberant financial markets. If we compare to use this old qualification from Queensborough at a time like what economy was kind of normal because I would say like even that's a very beginning of globalization as it is now 20 years ago but the financial market seemed to be right now in total disconnection with the real economy. Like when countries are like minus 10, 15% of GDP for 2020 like UK, France, Italy, Spain it will be between 10 and 15% of GDP. And you have basically financial market in these countries and in the US as well. US is still in the middle of the pandemic and you have basically I think the standard and full S&P index is back at the level of before the crisis right now. So if you look in detail you see that you have actually like the New York Stock Exchange index which is like minus 5 or 7% of its level before the COVID crisis but you see that NASDAQ which is like more oriented to what the new technologies is already higher than it was at the beginning of the year which in the current situation of the global economy and of each actually of each individual economy is totally insane. So it seems that we have here a kind of bubble and it shows actually what the crisis is like not to the global economy. You know like there is a statistic I found fascinating and scary which I think is established by an NGO called Oxpam, a serious one like the each year we calculate the number of people, the richest people on earth, how many of them are owning as much assets as the poorest half of mankind. So basically let's say that the like the poorest half of mankind represent like 4 billion people. I mean it's more like 3.9 but let's say 4. You had last year like 15 people were as rich in terms of total assets as the 4 billion poorest people on earth and this number was like like three four years ago it was like 50 people. So we went from 50 to 15 in like five years we will have five guys or ladies I don't know but well it's guys actually but we will actually own as rich or richer let's say than 4 billion poorest people on earth and this is what is doing the crisis right now because we have this very legitimate and needed intervention of government and central banks and especially central banks are expanding the balance sheet and bringing massive support to the economy through the banks through supporting the companies in some countries through supporting directly the households but it's not the most common case and basically goes among other places but it goes especially in the stock market and we have on one hand one hand you have like listed companies basically got okay with the support while the SMEs the non-listed companies the real economy with the lockdown they lost everything and this one side it's much more difficult for the central banks to reach them to support them through the crisis it's much more difficult for the government to reach small entities and other individuals and to reach like basically give a bigger amount of money to a big airline company or a car company and you have this I think the crisis is unfortunately we speak a lot about I think we could perhaps stop on this issue during our call but like one of the effects of of the crisis is to accelerate this concentration of wealth in a small number of hands while the major like majority of the world population is getting impoverished so it's increasing as it says bad effects of globalization thank you very much for this note Sebastian they nicely relate to the next question have in mind which refers to government policies so the governments will it's quite they will experience budget deficits level of public debt like they never saw before since the decade or probably centuries ago and probably they will stay for for some time into the future so what do you think how do you think all these will affect the rows of governments and their fiscal policies and the term what's the fiscal space they have to do anything to help the economies and then in a medium long term how to ease the burden of public debt for instance well I think it's one of the good aspects of the crisis one of the good external entities is that I would say the ideological barrier to the issues of public spending on debt kind of collapsed and basically you know especially in Europe in in eurozone because UK used to be in Europe but not in the eurozone so you had some like budgetary rules as well but you didn't have this stretch of eurozone rules but like there was a especially in eurozone but globally there was this so-called although liberal Washington consensus ideology where basically government should reduce its impact on the economy and should basically like reduce its uh spending in share of GDP and you have actually the debt was the debt level was instrumentalized to protect but actually there was no money anymore in the public treasury so because of the debt states need to cut spending but to be honest this was purely ideology because this spending cuts were actually dismantling the welfare states of the post-war economies basically to make it short like after 1945 you had like the western societies on one hand and the soviet-led societies on the other hand and each each like country on the west like especially in european countries they were having actually a quite big chunk of their citizens voting for the local communist party so basically in this pre-globalization here are of the post 1945 times like the governments like and governments were focusing on making their citizens happy so they don't start to vote for the communist party to avoid but the communist party get into war and they put in place like health insurance pensions like people were employed for life in the same companies etc so like i would say life was kind of happier before and then ussr collapsed and there was not this competition between the system so it's when like the first globalization started like basically a free movement of capital like all like capital accounts of all countries are totally open like you can send money anywhere so like exactly production started to shift abroad to have lower cost to go to the emerging markets i mean emerging countries uh china started to raise as the uh like main factory for the whole world etc and and basically uh it was not needed anymore to spend so much to redistribute so much money through the citizens so like they used the pretext of the public debt to cut into this welfare and uh but actually as as much as there were like dismantling the welfare in counterpart they were actually reducing the taxes for the most rich part of the citizens because the pretext by any way they could relocate their wealth somewhere else so let's don't ask them to uh to pay anything so they don't go somewhere else that was logic i would say at the same time you had this like aggressive tax optimization which is uh honestly like it's a bloodbath for especially european countries you have all these digital multinational us companies like amazon google apple april for instance the phone maker european commission calculated that in 2014 their effective tax rate on their profits for the whole european union was 0.0005 percent of their profit they don't pay taxes in europe and they are like having billions i mean tens of billions of hundreds of billions actually of profit on the european market and they are not paying any tax in france uh italy spain germany etc so you had this uh like pretext of the high debt to cut public spending going to the less wealthy part of the population why the multinationals were not paying taxes anymore and the rich individuals were basically expatriating not paying much tax locally in any case expatriating the money anywhere because of this free movement of capital so i would say the debt is uh is a false problem when you consider countries which have their full uh economic sovereignty like japan japan has like uh something like 250 percent of gdp uh the debt the japanese public debt represent 250 percent of japanese gdp but it is not considered as a concern uh because basically first like household in japan buy a lot of it and because japanese central banks is buying the what is needed to be bought in order to avoid any like going astray i mean so if you have if you have like basically for a country who has the control of its central bank it's extremely easy to monetize the debt it's what everyone does the US does it the UK does it japan does it so only countries which are under this like ideological pressure are forbidden to do it like heroes in countries that's probably like i mean not probably i mean like countries under imf program cannot do it and etc etc so where is the one of the effects of the crisis is to have like broken this uh this like consensus that debt is something you cannot touch that central banks forbidden to help with the government buying the debt etc no it's massively done and i think it will continue to be massively done so the debt is on the medium long term isn't and even short term is not a problem because the central banks just spend money to buy it in a context where having such a terrible dire situation of the economy there's no inflation risk at all inflation is a pretext it's another pretext to uh for buy the two central banks to help their uh to support the government by buying the debt thank you very much for this note which is fully subscribed personally but as you mentioned the role of central banks and the eurozone i can't avoid one last question at least for opening the floor for other questions so as we know in the within the european union there have been and there are still quite a lot of issues and discussions concerning the ways in which the european union can support member states in the recovery in the pandemics and especially the role of european central bank here i apologize with some participants if we get into a bit more technicalities but you can help us to better understand for instance the role of this uh um ruling from the german federal constitutional court of cash concerning a proportionality principle which does affect the participation of member states central banks to the bond purchase programs launched by the european central bank this is something fairly technical but which may have important consequences in a couple of months into the future so i know it's a pretty technical and difficult tricky issue but if you can help explain first the two participants uh what what this means and uh how do you how do you see therefore could be the the future for the role of uh european central bank eurozone monetary system so euro is uh like as you know is a monetary union so it's a common currency for currently 19 19 states different states and and the euro is like is a purely political construction uh it is not something which is i would say economically natural it's a man made and i would say the closest comparison you find you can find to the eurozone construction is uh something probably you have to go to the soviet union to see this like i would say man manpower will trying to like force like economic forces to enter into some ideological construction the euro is something in itself which could potentially make sense in with two pre the first one you have in these 19 countries you should have an economy which is totally synchronized you should have economy which basically are fully integrated and are basically at the same moment of the cycle and function in the same way with the same level of of taxation same level of cost of production like same level of like job market etc you should have economies like fully integrated to have common currency and of course it is not the case and the economies of member states are are widely diverging and the second precondition you should have is that this common currency should be basically going hand in hand with a common common public finances budgetary ministry of finance function you cannot have like a like currency without having an integrated budget at level of the 19 member states and as you know we don't have a common taxation at all you have countries who basically try to steal the fiscal base of overs and we contact at all like countries are widely diverging in their public finances and as i said economies are absolutely out of sync in the eurozone so why are we in this situation because in the 1980s at this moment where actually it was visible that the USSR will economically collapse and collapse like globalization started to put in places i would say it's structures and and Germany was one of the countries who were expected to be part of this financial and production globalization they actually were pushing to have to have free movement of capital without the European Union and and they actually got it with the 1986 act unique which was creating the internal market with like a total freedom of circulation of goods and services and total circulation of of capital and this was what Germany wanted but the French leaders at the time it was Mitterrand and very basically these guys were not extremely they were like from the past century very much and they were not into macroeconomics and and they were having this idea that they were focusing on getting like getting kind of like a piece of the ground which was seen as a strength of the German currency and they wanted basically they were ready to give up give up anything so again like because of this like free movement of capital without harmonization of taxation you had like a massive disindustrialization of France like in Germany and France like industry was between 20 and 25 percent of GDP at the early 1990s no it's still at the same level in Germany but in France it's less than 10 percent so we lost all the productive capacity because of this free movement of capital and in exchange we were I mean the leaders of the time were considering what they needed to to anchor themselves with the Dutch mark and create a common currency and they Germany was not very willing to do and the French continued to give up whatever they could to please Germany so this is how we went to be Madrid and Maastricht treaties which are basically dictated by Germany as a condition to give up on to give their own currency to everyone in which they basically try to enforce this orderly thinking of prohibiting to the central bank to contribute to the public finances by prohibiting to the central bank to help the state by so-called monetary financing which is to buy the bonds issued by the government so from this point basically and they had this put about the three percent deficit should not be over three percent of GDP extra but the main problem was this prohibition I could say of monetization of the debt so starting this point the debt in all countries started to raise because there was no moving to basically make it disappear in the accounts of the central bank and and the rules were made like the French and and over countries were considering okay we give the rules to the German but anyway we will not respect the rules so and Germany itself was engaged into a kind of like a non-cooperative internal competitive disinflation at the beginning of the euro so we're the first absorbed east Germany with very low levels of salaries they then like expanded their production base to be in the later years to be like new member states so-called in the central eastern part of european union and they did the so-called hearts reform basically which also like to keep very low salaries in the german industry while having fixed exchange rate with other countries so we started to while in other countries basically the cost of production were higher and the in addition the inflation was higher as well but you had the same policy rates from the central bank for all countries so some countries were kind of overheating while the rates were okay for Germany and Germany having lower cost of production they were basically having a competitive advantage for the exports which was and then there like surplus external surplus was increasing by the day i would say and in a normal situation when you have like currency flexibility between countries you have like if one country has a surplus to whatsoever then basically the currency adjusts to compensate so this like price competitiveness is erased by the like adjustment of the exchange rate but in a fixed exchange rate like eurozone it's not possible so basically there is nothing which counterbalanced the price competitiveness of Germany which is always increasing so it's a massive drag on other countries of eurozone and this is not going in the pockets of the german workers who has very low salaries and who are kind of relatively poor because in the pockets of the little ups class of the exporting companies of germany and in the pockets of the shareholders of the german exporting companies especially cars etc which are not even europeans there are at least half of them are from the us so basically have a drag of wealth coming out from european union through germany not even in the pockets of the german workers due to be to be eurozone so anyway long story to make it short euro is kind of like costing a lot of money for country costing a lot of wealth for like citizens of france and italy not even profiting german citizens and and the system right now is ready to implode because the crisis solutionally is the france crisis is striking much more countries with like weaker i would say fiscal in that situation like italy spain and france than germany situation is actually especially difficult for friends because as i often say italy basically when you have a huge lot of debt you have three solutions there's not many you can escape it by default you can escape it by i mean default unrestructuration of the debt you can escape it by austerity and you can escape it by monetization so to come back on this like default it's like let's say what did gris in the past years you explained to the creators when they own like 100 euro but actually it was only like 70 percent and this is not possible for countries like france and italy because countries are too big the debt is too big and the the debt of of these countries is held in many by many asset managers by many banks including global systemically important financial institutions if one of these bank if like you have a haircut on the french or italian data 20 percent these banks got bankrupt and you have a major global financial crisis on top of the current economic crisis so default is not possible for these countries austerity is not possible as well like italy is actually in permanent austerity since entering the since 1992 if you take like in the past 25 years italy each year was having a primary surplus which means that they were earning more tax revenue than spending they were having on average a primary surplus close to two percent of gdp there was only one year where they had a they did not have a primary surplus was in 2009 so just after the global financial crisis so we actually italy has a is enforcing austerity partial austerity already since 25 years but french cannot french they never had i mean i think they had one or twice a primary surplus so we do not know how to enforce austerity and it's good for it's good for the french economy but italian economy cannot do more than we were doing already so austerity is not a solution because it's self-defeating basically when you have the state which is like uh taxing more than spending you have i would say a kind of negative multiplier effect the state needs to inject economy inject money into the economy in order for the economy to turn and create more wealth itself which creates more tax revenue and which kind of self-finance additional spending of the state if you do the reverse you have the you have the reverse effect like for instance in greece the creditors impose the past in the current program like every year greece must have a 3.5 primary surplus 3.5 percent of gtp primary surplus and this is dramatic like you would have a primary surplus of 2 percent for instance this 1.5 additional spending in the economy by the state so less taxation almost spending whatever we have a multiplier effect of three so you have this 1.5 spending more in the economy like having a primary surplus of 2 percent instead of 3.5 will generate something close to 4.5 percent of additional gdp for greece which will generate itself something like 2.25 percent of gdp additional tax receipts so basically you have a self financing i would say of the additional spending so austerity benefiting because it basically kills the growth and basically when you don't have a growth growth basically the gdp is a denominator of the ratio debt on gdp so you have like you have the debt which continues to grow in terms of ratio debt on gdp what's happening basically to the open union to be eurozone since 1992 since the mass twitch pretty and the internal market being enforced so the only situation only solution we have is the third one which is monetization which is what central banks are doing right now worldwide which is basically this asset purchasing programs massive asset purchasing programs like the bank of japan is holding more than half of of japanese debt right now any any new debt which is issued by the u.s. government is bought by the federal reserve you have additional you have like several hundreds i think it's currently something like 400 billion of pounds program for for the uk and you have the programs of ecb so i start to answer your question of service long the tour about the european central banks so basically because of this prohibition of monetary financing by the mass twitch treaty actually the ecb started very late to do asset purchasing while over countries were doing massively massively after the 2008 financial crisis ecb started to do it really start only in 2015 and uh basically that was a little bit this misunderstanding of the mass twitch treaty as i said like germans were putting the rules in the treaty and over us were accepting because they were happy to do this trick okay we got the common currency but in any case we will trample the rules not respect them and nobody will see and actually in 2015 with the starting of the quantitative easing by mario draghi they used the pretext of the mandate of european central bank which is stability of prices they said we are close to deflation we need to do something to reflate the economy so we will create generate a little bit of inflation by massively buying assets including well buying treasury bonds i mean buying bonds from issued debt issued by the by the states of course it was absolutely needed to do this monetization for italian and french debt already in 2015 it was basically accepted very reluctantly by germany of course they tried to block it until the last extent there was a kind of deal which which was done despite so-called independence of central banks there was a kind of deal that germany will let it go for the quantitative easing in 2015 in exchange of the full support of bcb to squeeze political degrees we could expand on that but basically all this was done to support states and had i would say it has something to do with price stability but it was doing monetization one thing is that when you do monetization it's not like only buying the debt you have to keep it because if you use the central bank buys a italian debt or french debt and then sell it a few years later well it do not help you have to keep the debt until it arrives to maturity and i mean until it like for a ten years debt if you buy it it was already three years old to keep it for the remaining seven years and then you reinvest the proceeds buying new debts in order to keep to keep the level of debt of this country which you hold constant and basically even before this crisis at the end of 2019 with the program and its continuation and its reactivation november last year by the ecb you had basically 25 percent of french and italian debt which was hold by the let's call it ecb but actually it's more the european system of central banks because there is a rule that each central national central bank is buying 80 percent of its amounts of its own debt and 20 percent by the ecb itself so for instance when you have you had at the beginning of the year 25 percent of italian debt and french debt which was hold as we say by the ecb it was actually money money which was created by bank the front and bank at italia for 80 percent of it and 20 percent by the ecb itself so you have basically on 25 percent 80 percent of it should be something what like 17 percent so at the beginning of the year you had 17 percent of the italian debt which was held by bank at italia after creation of money by bank at italia so basically this debt de facto to not exist anymore and unless it would be sold back on the market if you don't sell it back and reinvest the proceeds but monetization it basically makes the debt disappear forever and with the financial this current crisis not the financial crisis but this covid crisis well with the new programs of the ecb so the old program was called the pspp and the new program is called the epp but basically but the same idea it's just that you have basically from a program which has something like two thousand two two thousand five hundred billion you have a new program which is one thousand three hundred fifty billion euros you continue to ecb continue to buy the debt and we are actually like a trampling limits which were put in place by the european court of justice and by the german constitutional courts in terms of like several limits like the two main limits is free criterias actually which germans consider should not be trampled in order not to have monetization the first one is that and these criterias were basically put in paper by the german constitutional court so they said if central bank european central bank do not go over these limits then it would not be monetization so we can accept it and these rules were kind of like accepted by the european court of justice and three men i would say i mean actually there is a few of them like it should be bought the debt should be bought on the secondary market and not directly uh so it's not direct monetary financing uh it should be bought after some time so on the secondary markets are not right away and there is like three rules the most important is the one i mentioned already that securities have been the debt should not be kept by the central bank until its maturity so it should be sold back before it uh it arrives to maturity and of course so far all the debt which was bought i had been kept until maturity so it was monetization second thing there is a so-called capital key limit which is that uh it was decided when the constitutive thing was launched but uh actually all securities were bought like it was not planned to support italy and france it was uh like all if it was supposed to help price stability i mean to raise level of inflation so it should apply equally according to the of each number state so basically uh the european system of central banks is buying mainly uh german bund because of the capital key of germany we i forget the exact number but something like around 22 percent so basically the bundesbank was in this program of 2 500 billion euros bundesbank was buying 20 80 percent of of 22 percent of the total i don't know if i'm clear but basically and like capital key for it's like shareholdership of the national central banks into european central banks so germany is a main shareholder of and friends in italy and so the purchasing of debt was uh done by each central bank buying it's on that in proportion for the total envelope of vcb in proportion of the respective size of each economy within the result and uh right now we are in a situation it was kind of working uh and or sorry and there is a last last criteria i would say i want to mention is the so-called 33 percent 33 percent of of debt of each country a limit that the european system of central banks should not go over holding more than one third of the debts of each country it's a little bit more complicated than this but in a summary like it should be 33 percent of each line of issuance actually but i made a mistake by the way i said 25 percent at the beginning of the year sorry it was 25 percent hold by the national central bank but actually the total uh purchasing of the european system of central bank close to 33 percent was a share which was held by bank at italy of italy and debt and by france for uh french debt so actually at the beginning of this year the limit of 33 percent was already rich why this limit exists because basically there is rule in issuance of debt in eurozone since 2013 but in case of restructuration of debt so in case there would be like a default uh there is like uh bondholders meetings and they decide to restructure or not to have a haircut or not and there is a threshold for the decision that blocking minority is reached as 33 percent so basically if the central bank hold more than 33 percent there are the ones actually decided deciding if they want to do uh the haircut or not so basically the central bank is in a position to accept to monetary financing or not if they accept to do monetary financing they are infringing the treaties if they refuse to do the monetary financing uh they refuse the restructuration so because of them you have like a chaotic situation of disorderly default so this is why you have this 33 percent limit uh and right now with the new program the capital keys uh is not respected the 33 percent limit is uh not respected as well at the end of the year we will have the european system of central bank which will which will hold 40 percent 40 of uh italy on french debt and of course they have no intent to tell it back on the market so basically on may 5th towards the end of a process which lasted which lasted i think something like three years there was a back and forth between the german constitutional court and bcg german constitutional court constituted decided i mean in 2000 2018 i forgot the exact date but they decided that what they decided again on may 5th they said that basically this program is not appropriate and the european court of justice said no the program works fine and then the constitutional court in germany decided to take back the case because they considered that it was not properly assessed by the european court of justice and they they said look again it was a case which was uh touching upon the former quantitative easing i mean it still exists but it's not the current pandemic program so they were saying look it's not monetary financing if you continue to follow the five rules i mentioned which was a case for the earlier program but of course it's not the case for the new one but the judgment is about the former one and first thing so they said okay so far it's not monetary financing but in deciding in deciding this program the european central bank basically twisted totally the spirit of the treaty i mean they are actually supporting the states pretending to want to raise level of inflation and to respect price stability so basically the german constitutional court is kind of like uh taking out the veil of like this attempt to do something uh prohibited which draggy put in place and bcb put in place in 2015 pretending about price stability but actually wanting to have the state and like nobody says anything it seems obvious to everybody but the german constitutional court said okay it's enough now because uh you are like like it has an impact it's not decided democratically like it's not in the treaties so it was not ratified by democratically by parliament or by referendum uh you decided to do it but nobody gave you this mandate it do not uh it do not follow your mandate so you are totally uh you are totally uh beyond the limit and they said look we don't believe this what you are doing is according to the treaty so use this vocable of proportionality because basically uh in german law system when you take any decision you have to prove that it is proportionate to be objective so they explain okay you pretend it will have an impact of inflation but actually it has much major impact on the economy and on the solvability of individual states so you have to prove that actually you did this decision specifically for price stability and not for any other consideration and they asked they gave three months basically they asked the german government and the german Bundestag parliament to organize that the godly elements proving that this decision of the quantitative thing was indeed for price stability and not something else and uh and basically everyone knows that this proportionality cannot be demonstrated because because of course it has an impact of inflation but but it has much more over impact including helping states to make their debt sustainable which i think again it's a necessary thing but they we have they have two aspects in there we have to kind of like clear this it's not a misunderstanding it's like this pretension between countries that they share a common view on monetary policy and economic policy why actually they have totally diverging views so we need to make clear who wants what germans do not want to do monetization french and italians absolutely need monetization and and the second thing is is that we have to actually clarify and say the processes and we have to put more democratic decision into this uh technocratic decisions of the central banks and we have to revisit the so-called independence of central banks i said earlier but the actions of central banks currently in the global financial in the global economic crisis was needed and legitimate but at the same times as we described as well it creates a verbal inflation financial market and do not reach the and kind of aggravate the inequalities within the population so we have to have like more democratic control of the decisions of the central banks in general in the european central banks in particular so what i think we are heading for well it's a little bit long on this explanation but and i hope it was understandable but i think right now we like germany and i mean german politicians and the german citizens uh they always hated these ecb policies at the time of mario draghi and i think they cannot stand it anymore so either ecb becomes a german bender's main piece like it was intended in 1992 it's a much retreat or they just leave the joint monetary policy but this time i can say contrary to contrary to 1992 and so following uh decades right now with the level of debt which we will reach in france it would be something like 120 125 percent of gdp in italy it would be something like 170 percent of gdp of debt if we don't have the monetization by the central bank it's not possible as i said we cannot have default we cannot have austerity so with these countries really need monetization so they like basically ecb sided i would say with its current practice because i know it's not it would just create like a major major crisis worldwide in france or italy default and basically germany has no other choice when actually to leave the joint monetary policy so what will happen i think we can we can perhaps make a rendezvous for august 5th because the court of casru gave three months to have this demonstration of proportionality and this demonstration will not happen because it's not possible and so yesterday we cb gave 50 kilograms as we say of documents to be given to the bundes tag he has a bundes bank but these documents are like past decisions minutes and these decisions like the head of the german bundes bank was participating to them and strongly opposed the plan has not been proportionate to the inflation objective but helping states to finance their deficits so like there is nothing to demonstrate and basically the bundes bank on may 5th we just apply the sentence on august 5th we just so that they are free months we'll apply the sentence of may 5th and we'll stop participating to be quantitative so it would be like the first step for germany to exclude itself from the ecb monetary policy and of course it will it will not it cannot start it cannot stop there i mean it's just a starting point because as soon as you start buying boons then you actually organize to sell boons then there would be like a major like a divergence in terms of evolution of the bond debt acquisition between germany and the rest of eurozone and it will basically trigger at some point but germany will have to stop capital inflows to germany to stop to aggravate the target to buy imbalances and control etc so we will at the end arrive to a point where germany will exceed the eurozone and i think we will actually exit not alone but we will exit with countries like netherlands finland the Baltics etc so we'll have like a nice cut clear split between two euro zones i think sovereign countries into being friends and in other countries so let's have this rendezvous after august 5th to discuss what happened but i make the bet that germany a very short bet actually that germany and august 5th at the latest will exit quantitative easing great thank you very much sebastian for the very detailed and very informative analysis and i can see from the chat some of the participants appreciated it quite a lot i know you made yourself a free from another commitment when it is now one one p.m. in the uk so i wonder whether it would be fine for you to stay just 10 15 minutes more with us because i can see the participants the first one is a see a line from chelizzi mnei would like to talk through audio if they have a microphone and therefore they are in the chat and some questions from mammoud and jack up at the moment so if that's fine i would invite and on the spot see the first if they can speak through the microphone thank you very much doctor i think it was very interesting presentation i'm a member of parliament of the republic of south africa i'm also the whip on health portfolio committee meaning and therefore i give political direction in parliament on health meters with respect to combating or fighting the battle against covet 19 in my committee all the ministers must be there and understand the party political position so therefore this this is very interesting presentation that's relevant to south africa our country has been done graded by the rating agencies our debt to gdp is almost 82 percent as of this month and i think we already resolved to borrow money from the imf and the world bank already we have received some there's a commitment to receive funding from the briggs development bank so what we in my analysis this may be i think there's an applications of the obstructive measures which in your presentation you said it doesn't work i 100 percent agree with you which measures australian australian measures that you said it's not it's not it doesn't work and i can agree with you 100 percent that the the covet 19 has brought some unintended or devastating impact that really we have not seen for the past 200 years so it impacted in the economy and also collapsed the health system or overwhelmed the health systems so in the context of globalization as you know globalization don't only move goods and services i mean logistic we also move logistics and so on but people move with right and that spread the pandemic and i agree with you one of the negative example is that the virgin virgin ally in australia has been liquidated but i'm trying to give some of the example that relates to the some of the impact so i would want to understand um in our own situation i would want to understand that the in britain initial u k or britain when they decided to avoid to leave the european union was that based on the disagreement on the common uh monthly policies disagreement or possibly is it anti globalization what could be the basis you know on personal view thank you very much very honored that you are listening to be to this broadcast and thank you for your very comprehensive question on the first aspect about basically the public finances and that sustainability you know like uh i'm speaking a little control but i think like the latest i am a forecast for south africa for this year would be eight percent minus eight percent decrease of the gdp which is something like huge and we are in a situation where i think how to say like we have basically to put everything into the fight or like public finance we can not thinking about the debt because we have basically to fight this economic situation right now with all the means hoping that at a later stage next year or the year after etc growth will help with the debt and debt sustainability but if we do not fight right now basically this situation where we have eight ten twelve percent of gdp recession will like put the whole society into a total chaos we need to keep people employed we need to support companies to stay open especially sms we need to keep the health system working so we have to basically spend without thinking i think for all like the global community and especially like countries are as important as south africa that's that's for the first aspect we need to basically it's uh if we need to be still alive next year in order to be able to consider about the debt uh if we are dead economically socially etc it's uh it's no use so basically all the forces need to be put in the battle right now for uk as you know basically at the beginning uk was in the 1990s i mean until 1992 uk was in the monetary system was planned to participate to the eurozone and then uh it went out after the 1992 like speculative crisis and then the uk decided again will they participate or not and they decided not to participate to the eurozone and i think for the uk it was a very positive decision at this time not to participate and they had basically all the advantages of the euro without having the macroeconomic inconvenience to be part of it basically london will be a harmonization of of the financial laws and regulation and banking and financial services laws in the european union it was uh before the end of the 90s it was needed to like be multi local multi domestic to have like recreate the whole day for financial services to install in each member state of the european union to provide services but after starting in 1999 2000 basically you could do everything from one country so all the financial industry like concentrated in london provided the financial services for the whole continent of the whole eeu from one place and basically the whole liquidity financial liquidity of the eurozone moved away like all the liquidity in financial markets born markets etc moved to london and london became like the financial place for the whole eurozone without being inside the eurozone so we didn't have the constraints in terms of macroeconomy but they had all the advantages of the liquidity of the debt of the euro denominated financial markets so that was one aspect and the so we could have like in the mind of like i would say mainstream politicians like they came around they thought it's a very good situation and we have to basically continue in this kind of free riding being different but taking advantage of the harmonization of the eeu not having been obliged to like enforce it fully but but taking advantages and the city of london was of course very happy of the situation but what happened is that as you know we'll be opening you have the not only the free circulation of capital and goods and services but of people as well and as soon as new member states join i mean probably many of you are living in london so i'm kind of like preaching people who know better the situation than me but like there was a huge influx of workers from the new member states in in uk and this like put pressure on on the salaries down and put competition on on the workers from like uk has friends had very difficult situation with this industrialization so you had this influx of of qualified people coming from eastern member states but accepting low pay jobs and low qualification jobs etc so basically the the base i would say the back population which is not working in the city of london was very unhappy with the european union so they kind of like voted to leave and actually uk has a chance to sorry if i heard some political feelings a few i see it from outside so it's not i'm not involved in british politics but i have to say that you have the chance to have someone who has a clear view in the current situation to maximize the positive potential positive effects of of brexit with the boys johnson because since you're living so it can be discoverable what is the best economic interest should uk be inside the url or outside no there is no chance that it is inside so it's outside so let's just plunge and have policies which maximize the potential beneficial effect for uk to be outside meaning having protectionist policies trying to reconstitute domestic internal market trying to give job to people trying to re-initialize really we show and relocalize the production and basically having a policy of support to be internal demand and actually you know like european union it's this free circulation of everything capital goods etc so basically you you have this so-called huge internal market which is itself totally open to the outside world like there is actually no protectionism of any kind to try to protect the internal european market not only like the like barriers are erased between member states but it's erased with the rest of the world so it's like a steppe flat area which is penetrable by everyone and so uk being out i mean this this issue of like recreating like nurturing a domestic market focusing on the internal demand you know countries like uk france italy germany etc this is like 60 70 80 million people markets of wealthy people and it could be i would not say self-sufficient but if i would be like a like a focus on giving jobs to people within the country like recreating industries etc people have like status in society we have a job we have revenue they spend etc you you have like a machine which is put in place on which starts basically to create growth by itself and that's actually what Boris Johnson is attempting to do and honestly i command his efforts and i think is the right person at the right moment and i hope you will be able to continue what you want to do well thank you both for the for the change Sebastian i hope that's fine if we quickly at least to take a few questions which were left there in the chat so it's right is a holiday is a weekend so i have all time you want a little bit more guilty to take time from your spare time in this case however so we have a few questions from Mahmoud here on the chat the first one comes into two parts as you can see probably so he mentions there is the federal reserve rate which has been fixed under a quarterly point for at least 2022 a very low interest rate environment in the US many do perceive that probably looking at a depression rather than a recession there in the US what do you think how do you see economics prospects there so but one aspect thank you Mahmoud to mention that because i didn't mention actually that in terms of debt sustainability in addition we are in a situation where market rates in many countries especially in the eurozone are negative so basically like states receive money for borrowing like the people borrow 100 for them and and basically they like pay the states for borrowing from the state for like lending to the state sorry so negative interest rates on the public debt so in this context of very low market rates it's a criminal not to actually it will be criminal not to seize the occasion to massively inject like money in the economy through public in debt so regarding the US and like the shape of the recovery are we in recession depression it's honestly difficult to do to to assess as i said at the beginning we are in like major uncertainty a situation of major uncertainty this said like i would say that the consensus forecast including my mf for a city etc seem to indicate that the the debt of the recession this year will be less performed in the US and in the eurozone for instance and and that the i would say flexibility of the US economy will allow like a faster recovery that's what is currently foreseen this said what i described about the like big company being kind of more easily supported versus small medium enterprises having more difficulties to be reached by the state support i mean by the federal state in this case support and basically having all these investments made by the owners of the SMEs the company is being wiped off by the crisis it's kind of like a lost generation in terms of like corporate investments for these small enterprises including in the US so it's i think still that US will recover more easily than eurozone more flexibility and and i would say that the programs designed by the US federal government and the congress i think were more efficient in reaching the small like the individuals and small companies but in europe so i think all in all US has more chances to get out in a better shape than most eurozone countries and within the eurozone germany will recover more easily than france italy and spain for instance so we have this kind of diverging trajectories which are definitely your concern well thank you sebestian there is a second question again from which seems to be direct towards me actually so it's what taxation is an issue and many governments have adopted elements of austerity which will help in reducing the public debt but will depress growth to some degree the core measure should be addressed towards the public spending sources that will support the economy in the long run and help grow what would be the view of alberto on how spending should be addressed or directed well i can share some ideas and sebestian if you wanted to expand on it sebestia mentioned the multiplier effect of public spending which i fully agree there was a head in mind the idea that there can be many multipliers actually to public sector spending depending on what we spend the public public money on so it's like at one extreme the government can just act like an employer of what's the resort and to pay people for doing the jobs which may not really add too much to public services in a sense and so this also relates probably to the issue with the low productivity of public sector in many countries at least on the other extreme probably makes sense to think about other forms of spending which can be more impactful from infrastructure to general technical soft skills of people i do not want to praise any particular patient so i believe can be anything from computer scientists to geneticists to better social workers and so on but if where we are asked probably just because of my profession i'm especially big on education and especially starting from kids from schools these are if you accept a multiplier effect if you are patient enough to accept a multiplier to display the effect the impact not to in a short term but we are patient enough probably especially big on investing on schools our kids our skills for next generation to come in a sense to be my line on answer i don't know whether Sebastian have anything added to add anything more to add concerning where could governments spend money on if they diverge from austerity measures very briefly two aspect one i mentioned already which is that there is a big hole in taxation which is the digital economy and especially the u.s. multinational or the digital economy would not pay taxes anywhere this is a major problem i think that should be like a convergence i would say like the criteria to the criteria to tax these companies should be where the consumer is and it would be like a little bit not a vat but like this multinational u.s. digital company should pay taxes wherever consumers are we should we should go towards this and it is of major macroeconomic impact i think the loss in terms of tax revenues of this u.s. multinational companies for france is of the order like of two percent of each year of loss of tax revenue as you know it is a program the so-called buzzer version and profit shifting program of the u.s.c.d. and recently u.s. kind of like decided to put an order on this they don't want their companies to be taxed in other countries these companies do not pay taxes to them either but they still hope that at one point they would be able to find a trick to make them pay more than they pay right now i don't know if i'm clear but this is in terms of and since the digital economy is one of the sectors which profits actually even profits for the current crisis it accelerates actually the digitalization of the global economy and the major players are not paying taxes it is honestly like a corporate taxes it's a major issue for all of us and this should be definitely addressed as a priority because before thinking where to spend efficiently we need to to have the revenue and it's if these companies do not pay or the burden fiscal burden will be on citizens who cannot move countries and will be on small middle enterprises and this is not acceptable socially it's accelerated this concentration of wealth in a few hands and impoverishing the middle class everywhere in terms of priority of spending i think the states will need to kind of accompany the transition because of this crisis you will have sectors which will be immediately damaged most probably and and this again like currently it's a transportation entertainment tourism and need to accompany and save the risk killing of of people to what the most like growing sectors to allow them to kind of like I would say adapt their qualification to be able to find a role in the economy post first crisis well thank you Sebastian also because I believe you're also already addressed the third question from from a mood concerning precisely B EPS we're probably just one modest addition from inside there should be a role around the talking not just the behavior multinational companies of course that they do the best they can to reduce the tax bill but probably what governments can do to increase their coordination to agree on tax policies without eroding each other's tax base of course including the role of tax havens to some extent in so far they facilitate some legal arrangements to to to diverge revenue and profits somewhere else if that's why questions from if you want to add anything just very briefly I mean the whole problem is that the current system is described a little bit like a pre-1990 situation where states where are trying to make their citizens happy and post-1990 we are involved where the only criteria is the shareholders maximization of profit and like you said it seems to us very natural but the multinational company try to minimize their tax bill but it is absolutely not fair I mean and we find it normal I would say because legally the only things which can't see is that the shareholders are happy and the more share I mean the more people are like squeezed professionally and like laid off and production is delocalized and costs are reduced shareholders are more happy and but like the majority of the population of the stakeholders I would say are unhappy so I think really that's currently like a major major issue I actually I said it would be brief but I make a second parenthesis like if you observe the difference between like Africa for instance in terms of covid propagation in Europe you see that actually there is much more rate of death of covid in which countries compared to poor countries why because I will enter into this polemic about the like medication but it was observed in China in January February I mean December January actually that was a combination of hydroxychloroquine and acetromycin which was working to basically stop the propagation of the virus basically when it is take it not only they are recovered more easily but they stop being contagious and these drugs basically exist especially hydroxychloroquine exist since eight years it was taken by two billion people and it is it's anti-malarial drug so everyone has it in Africa they know it perfectly they use it a lot before covid crisis so they gave it they gave it very easily and basically it stopped propagation of the virus why in Europe we are under this economic logic of finding at all costs a new vaccine or a new drug because it should be a new product because all products do not bring any money because anyone can go do them so you need like some maximization of profit of one company and its shareholders to find the new drug and because of this model like they refused basically there was a lot of lobbying and propaganda and you know like Lancet study and things like this and OMS, WHO I mean and basically the rich countries were actually refusing to use the cheap available drug under any pretext and this is why we have like maximization of number of debt in European countries for instance and that's I would say like an other example of how the maximization of the shareholder profit is creating a hub to society and economy. Thank you also for these thoughts Sebastian I hope that's fine I take just one last question out of the chat especially because it does relate with a lot of interest of our students as saw us in settings in particular who work or are based in developing countries so Jacob asked thank you very much for your analysis first to help understand the prospects for recovery for develop and developing economy and the question from Jacob is especially in a developing economy context what do you think are the perspectives there what would you recommend to a developing country to do internally and they write so that we do not end up running for IMF for bonds, grants and so on so I believe the spirit of the question is can you see anything domestically in terms of domestic policy for a developing country and what they can do to take with the effect of the pandemic in the next years? Well I personally believe it depends on the size of the population mostly like big I mean for like developing emerging markets countries with important population there is definitely a path to develop the internal demand and having like a cycle of development which will be internal the idea that countries must at all cost insert themselves into the globalization chance is I would say is a little bit neocolonial like indeed there is like a search like investments arrive in the country etc but at the end of the day like countries are like I would say these countries are like in the lower value added part of the chain and it's not the way they will develop they are just putting themselves in a dependency of like countries were ordering the value chain somewhere else and like this Chinese I would say not my miracle but where Chinese accelerated its development over the past 30 years it's very aggressive but knows the country is as totally rebalanced is developed economic growth on the internal consumption this rebalancing happened like around 10 years ago it just moved away from depending on export being part of the value chains they started to relocalize the production in over a soft Asian countries and they started to rely more and more on domestic investment and conception and and I think that there is in the current situation where there is a real doubt about how we develop the how we develop the global value chains the global supply chains so countries should do whatever we could to try to generate the internet demand and try to be as much as possible self-sufficient in terms of economic development great well thank you thank you very much Sebastian I can see there are a few additional comments to thank you for for your sessions one final question calling for a short answer from a shilliz in monay again what do you think is the global economic balance of power relations but I believe I believe as Sebastian it's up to you if you if you ever really answer otherwise I would be very happy to host another webinar with you more around the geopolitics probably very briefly I think Europe is very weak indeed like this question has a relevance because you know in the past in the past like strength of a country was related to its population and its army like 18 19th century you know it's related with the economic strength I think Europe is very weak because it has no protectionism to its industries and the most powerful countries within Europe is Germany but they actually totally depend on countries who are importing their products because Germany is totally kind of its economy is mercantilist totally focused on exporting so basically they totally depend on what the Chinese and US will buy from them so anytime US are annoyed by Germany for any reason they start to threaten to put tariffs on cars and like 25 percent on German cars imports and Germany is like so scared but they do whatever the US wants and Germany takes the whole view with it so basically to answer your question first thing Europe is weak extremely weak in terms of geo-strategical influence and it is right now indeed a kind of like opposition between the US and say US-led group of countries and Chinese-led group of countries and I think this situation extremely worrisome it's worrisome in terms of for people who are obsessed with trade it is it is a concern economically I think it can have positive externalities in terms of reshoring and relocalization of production and as we said for China it's less dramatic now to have problems with international trade because they largely rebalance their economy into domestic consumption so they can be more self-assertive they are not in the situation of Germany anymore like 10 20 years ago if the US started to be annoyed with China they threatened to stop like the production in China and China would be very scared but now it's much less scary for them so we are kind of liberated themselves from this dependency so I'm extremely concerned in terms of like purely like geo-strategic terms of this kind of radical like exaggeration of the antagonism between US and China and it's I would say very sudden I mean like it's kind of I would say close to racism against China which is emerging very fast and I think it's it's scary and worrisome and so we see how it goes but we are indeed in very uncertain times and thank you very much for your time indeed Sebastien for the very thoughtful analysis thank you for the participants who stayed with us until until the end and for their for their questions hope you enjoyed the event thank you thank you very much from my side look for everyone