Action must also be taken on the supply side as well. For many companies, the priority will be to meet orders accumulated while production was halted. The stakes are high, as those too slow to resume production will be squeezed out by their more agile rivals. Labour mobilisation through flexibility in the management of working hours and holidays, could make the difference between recovery and bankruptcy. Countries who will help businesses have the best chance of recovery will fare better.
What should European efforts focus on? I have four proposals.
1. Consider the Italian case as systemic
Italy is the most affected country in the eurozone. It is also the one with the weakest economy, the most fragile banking system, and the highest public debt (apart from Greece).
The Italian risk is systemic, meaning that Italy sinking puts the whole of Europe at risk. It is why the coordination of European aid will need to focus on Italy. The ECB has been flexible about allowing the Italian state to go into debt without difficulty, but that will not be enough. In the arsenal mobilized by the Eurogroup, transfers and recovery aid in the form of loans will have to go primarily to Italy, Greece and Portugal. The EIB should follow the same line of thought. In response to this solidarity, Italy's partners should ask the country to apply for ESM credit. That would serve to keep Italy from making any self-fulfilling speculation under the protection of the ECB. Ex-post, the ESM should have the ability to verify that the money lent has been allocated to fighting the epidemic and its consequences.
In the longer term, the sustainability of Italy's debt will have to be addressed. That will be an extraordinarily difficult endeavour, and is outside the scope of this hearing. It would be safe to say, however, that his crisis has brought that discussion to the forefront.
2. Contribute directly to business investment
Before deciding on funding, the recovery plan proposed by France and adopted by the Eurogroup must be specified. The following is an attempt to quantify a plan of 1,000 billion (7% of EU GDP in 2019) over a period of 2 years (until mid 2022).
A first phase should aim at maximising the strength of recovery and to tilt the balance in the right direction. It should respect the rule of economic neutrality and stimulate overall investment, rather than targeting specific sectors. One way of doing this could be through direct aid to finance a given fraction of investment. In 2019, investment in the EU amounted to 3 200 billion, a sum that will be lower in 2020 and 2021. A 10% contribution, for example, would cost around 300 billion on a full year basis. The fewer conditions attached to aid, the more effective it will be. But only companies eligible should be those that would use their profits exclusively for investment, and do so in the EU.
3. Increase research efforts massively by capitalizing on the ERC
The second component should be aimed at basic and applied research. Research has the immense advantage of offering a very high and long-term social return, often estimated at 10% to 15%, without depreciation. The Pythagorean theorem or Louis de Broglie's wave function is still profitable. Research funding requires checks, which national bodies such as the CNRS or INSERM in France are able to exercise. So can this be applied at the European level?