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EU recovery fund, Lebanon in trouble, mask persuasion

Vonderleyen_PA_575x375_24July2020
By Jasper Cox
24 Jul 2020

This week in Keeping Tabs: what’s next after the EU recovery deal, assuaging public anger, and the Lebanese economy.

The EU’s recovery deal was sealed this week, allowing the European Commission to borrow €750bn in long-term debt, and so attention turns to what it means for European integration and financial markets.

While €750bn may not actually amount to a great deal in the overall context of Europe’s economies, the principle of loud and proud fiscal burden sharing — rather than leaving the European Central Bank to do the work discretely — is new.

Shahin Vallée, formerly an advisor to Emmanuel Macron, writes in The Guardian: “Reluctantly for some, gone are the days when weaker eurozone countries could only hope for European loans with austerity conditions attached. Indeed, member states whose public finances were shaky can now point to a political backing for their increased government expenditure.

“The European Central Bank can now feel that its sovereign debt purchase programme, which effectively mutualises debt, is unanimously sanctioned by European governments.”

However, he complains of a “lack of a clear commitment to common European taxation”, with the agreement not “opening a real debate about a common European tax”.

GlobalCapital has reported on some of the other knock-on effects of a new large borrower in the market.

Meanwhile, economics writer Chris Dillow reviews Angrynomics, a book by M&G fund manager Eric Lonergan and political economic mark Blyth. Essentially, the book explores the rise of anger in politics through looking at macro-economic and social changes.

It makes some tangible policy proposals, including making use of dual interest rates, where central banks target the rate depositors receive and the rate borrowers pay separately, and national wealth funds, which would recycle wealth to the less well-off by providing capital to spend on areas like health, education and training.

Dillow likes the ideas, but raises a concern that is relevant to anyone advocating solutions to ease economic and political anger: “If there’s one thing we’ve learned from recent years it is that the quality of an idea and the chances of it being adopted by politicians are two different things.”

He says: “Like Blyth and Lonergan, politics and the media distinguish between righteous anger and tribal atavism — but they do so to favour the latter.”

If this is the case — that bad politics is the barrier to solutions to improve anger — we risk a vicious cycle. Incidentally, GlobalCapital spoke at length to Lonergan about the book last month and raised this point as well: you can read his answer here.

If you want to put political and economic problems in Europe and the US in some perspective, you could read Liz Sly’s grim picture of what is happening in Lebanon in The Washington Post. Electricity, foreign currency and bread are all in short supply.

She quotes Fawaz Gerges, professor of international relations at the London School of Economics, as saying: “Lebanon is no longer on the brink of collapse. The economy of Lebanon has collapsed… The Lebanese model established since the end of the civil war in 1990 has failed. It was a house of glass, and it has shattered beyond any hope of return.”

The banking system plays a part in that collapse. Sly writes: “Lebanon produces almost nothing and has relied for years on an inflow of dollars from the sizeable number of Lebanese working overseas. Those dollars fuelled an arrangement that [Dan] Azzi [a financial analyst] and other analysts say amounted to a Ponzi scheme, under which banks offered high interest rates to lure US dollar deposits and then lent the money to the government — until the deposits ran out.”

Finally, Dan Gentile writes in SFGATE on persuading people to wear masks. The city his publication writes about, San Francisco, has particularly strict rules on mask wearing; you must wear them when within six feet of people you do not live with, even outside, and when indoors, even if alone, if others might use the space later.

Gentile spoke to Gary Noesner, a former head of the FBI crisis negotiation unit. Gentile writes: “He explains that using science or the law or politics won’t stop bad actors; this type of coercion requires a personal appeal. He describes that strategy as an ‘I message’. Instead of putting blame on the maskless, flip the problem on yourself. Be vulnerable and admit that you’re concerned because there’s things you don’t know about this virus, and that scares you.”


By Jasper Cox
24 Jul 2020