“China is not the neo-colonial exploiter that many in the West see it as.” - Branko Milanovic, entrevista (Der Spiegel)

 Der Spiegel, Hamburgo – 18.5.2021

Social Consequences of the Pandemic"

The Super-Rich in the West Are Evading Their Responsibility"

China is not the neo-colonial exploiter that many in the West see it as. On the contrary. China's involvement has increased growth in many African countries. Europeans also benefit from this.

Former top World Bank economist Branko Milanovic is afraid that the coronavirus pandemic has deepened the wealth divide. Those who have profited most from the crisis, he fears, have broken their pledge to help countries in need.

Interview Conducted by Martin Hesse und Michael Sauga

 

Serbian-American economist Branko Milanovic, 67, was born in Belgrade. He began focusing on wealth distribution and income differences early on, writing his dissertation on the subject despite living in socialist Yugoslavia and its alleged classless society. Starting in 1988, Milanovic worked for 20 years at the World Bank. Since 2014, he has been teaching at City University in New York. The focus of his research has remained the same throughout his career. In numerous publications, Milanovic has examined the consequences of globalization for inequality both within countries and between countries and regions of the world.

 

 

DER SPIEGEL: Mr. Milanovic, emerging countries like India and Brazil are suffering badly from the pandemic, and far too little vaccine is arriving in poorer countries. Is the coronavirus pandemic widening the gap between rich and poor?

Milanovic: That is to be feared. However, the situation can change quickly. In South Africa, for example, where the pandemic only recently spread rapidly, the situation has improved significantly.

DER SPIEGEL: Global inequality has decreased in the world over the past few decades, primarily a function of China’s rapid growth. Will that continue after the pandemic?

Milanovic: No, China is now a global middle-class country. If it grows strongly, as it has recently, it will increase global inequality, not decrease it, as has been the case during the past 40 years. At the same time, countries like India, which is likely to experience two years of strongly negative growth, are falling behind economically. The bottom line is that it is to be feared that the gap between rich and poor countries will widen further.

DER SPIEGEL: The big tech companies like Amazon and Google are making billions in the crisis, and employees in other industries are losing their jobs. Has the virus also made the rich richer and the poor poorer within countries?

Milanovic: Not in general, although it is still too early to draw strong conclusions. Recent studies show that inequality is falling in many Western countries thanks to huge government aid programs. On the other hand, it can be observed that the super-rich in the Western world are evading their responsibility. They did not live up to their own claims during the pandemic.

DER SPIEGEL: What do you mean by that?

Milanovic: I can still remember how the global elite promised in large public appearances at the World Economic Forum meeting in Davos that they would use part of their wealth to fight emergencies. Unfortunately, little of this has been seen in the past few months. Words and actions have been far apart. The inaction of big money in the U.S. was particularly noticeable.

DER SPIEGEL: The wealthy in industrialized countries have become even more affluent in recent years.

Milanovic: The income elite in the West today typically benefit from high investment income and growing income from work at the same time. This applies to chief physicians, star lawyers or software developers, for example. This is a new phenomenon. In classical capitalism of the 19th and 20th centuries, only entrepreneurs and capitalists were at the top of the income pyramid. The change we are witnessing, though, is a long-term trend that is exacerbated by the pandemic – for example, by the boom on the stock markets.

"The pandemic has shown that you can work from practically anywhere in the world with the help of modern means of communication. As a result, something like a global job market is emerging for the first time in many professions."

DER SPIEGEL: Which deepens the gap between rich and poor.

Milanovic: That's right. But this change also has positive sides, because it levels out the old opposition between capital and labor. At the same time, it protects the elite, say, the top 10 percent, from losses because their prosperity comes from several sources, both from high labor and from capital incomes. That makes the privileged classes even stronger economically - and politically more influential.

DER SPIEGEL: The traditional middle class, on the other hand, has suffered economic losses over the past few decades. Will this development worsen?

Milanovic: There are a number of signs of that. The pandemic has shown that you can work from practically anywhere in the world with the help of modern means of communication. As a result, something like a global job market is emerging for the first time in many professions. This is bad news for numerous professional groups in the West who have not previously had to fear global competition.

DER SPIEGEL: You believe that salaries may go down?

Milanovic: Not only that. Those who live in Delhi and email their reports to Düsseldorf have a much lower cost of living than their local colleagues. This can lead to the paradoxical result that equality grows globally, but the middle class in the West suffers.

DER SPIEGEL: How should governments react to this?

Milanovic: It would make sense to make it easier for lower-paid workers to access capital income. For example, through tax advantages or a promotion of worker shareholding. Education is even more important. Today the elites of the West use their wealth to buy their children access to the best schools and universities. This isolates the top 10 percent even more from the rest of the population. It reduces the chances of advancing socially and leads to a new form of rule by the money nobility. I call it homoplutia because the elite is wealthy (plutia) in terms of both financial and human capital.

DER SPIEGEL: The pandemic has affected the education systems of many countries. Classes were either completely suspended for months on end or only partial instruction was possible. Does this reinforce the trend?

Milanovic: I'm afraid so. The educational misery hits poorer families harder. The wealthy can more easily compensate for missed lessons with tutors, and they simply have more space at home, which makes homeschooling easier.

DER SPIEGEL: In the United States, the rich are said to be paying higher taxes for the first time in decades. Will that reduce inequality?

Milanovic: I am pleased with Joe Biden's proposals. It is right to raise corporate and income taxes. There are also discussions about strengthening the unions and investing heavily in infrastructure. The global minimum tax is also to be welcomed. Perhaps U.S. inequality has indeed peaked.

DER SPIEGEL: In your book "The Clash of Capitalism” you describe the two formative forms of capitalism: the liberal-meritocratic American capitalism and the state capitalism of China. Which one is better suited to solving the problem of growing inequality?

Milanovic: In both countries, inequality has increased over the past 20 years, in China even more than in the U.S. This is mainly due to the fact that China is starting from a lower level and the gap has grown due to rapid industrialization and urbanization. This process is not complete. Also, the economic and political elites have become mixed: private entrepreneurs have gotten very rich, but party membership is still very useful, especially – and this is quite interesting – for the rich entrepreneurs. In the U.S., on the other hand, the economic elite manage to buy a policy that serves their interests. With regard to the U.S., I am a little more optimistic that politicians are now taking countermeasures. In China, the fight against corruption, to which the government has been committed for some time, gives hope. I think politicians in both countries understand that you can't just watch inequality grow.

DER SPIEGEL: Europe has lost ground to the U.S. and China. Has the European social model grown outmoded in the face of increased competition among the major economic blocs?

Milanovic: It is undoubtedly under pressure, due to migration, but also because with the entry of China and India into the global economic system, the factor labor was weakened compared to capital. Economically, Europe is more liberal, in the economic sense, than it was in the 1970s, and the influence of the trade unions has declined. But the welfare state is such an essential part of the European worldview that it will not be abandoned. And that's good.

DER SPIEGEL: Africa is at risk of being left behind economically as a result of the pandemic. What does this mean for Europe?

Milanovic: The stark income gap between the European and African Mediterranean coasts could shape the relationship between the two continents for a century. Where does an investor invest when asked whether he would like to get 1 percent return or where he gets 10 percentc It is the same with wages and salaries. Of course, this is the reason why people are drawn to Germany, France or Sweden, where they can earn many times what they get in Africa. That remains a driver for migration. Europe should have the greatest interest in improving the situation in Africa.

DER SPIEGEL: What would be the best way?

Milanovic: The EU should promote investments in Africa and cooperate more closely with China. Instead, it has made itself hostage to Turkey in terms of refugee policy.

DER SPIEGEL: Europe shouldn't just leave the African continent to China?

Milanovic: China is not the neo-colonial exploiter that many in the West see it as. On the contrary. China's involvement has increased growth in many African countries. Europeans also benefit from this.

DER SPIEGEL: Mr. Milanovic, thank you for this interview.

 

O Covid e a próxima Grande Depressão - Der Spiegel

The Coronavirus Could Cripple Public Finances

Der Spiegel, 14.05.2020

Spring forecasts: EU Commissioner for Economy Paolo Gentiloni spoke of a looming recession of historic proportions

Kenzo Tribouillard/ dpa

Johannes Slawig hasn't had a lot of down time in the past few weeks. The head of the coronavirus task force in the German city of Wuppertal has had to procure protective equipment for the health department, hire doctors for the makeshift hospital in a local gymnasium and check the financing of the fire department's new test center.

Slawig hasn't even found the time to check out the webcams on the municipal zoo's website, which have been documenting the first steps of the newborn elephant, Kimana.

DER SPIEGEL 20/2020

EcNn9nEBczIfQS1aMikz_720p.mp4 

The broadcast has been a small consolation for the patrons of the temporarily shuttered zoo. But for Slawig, who normally works as Wuppertal's treasurer, it's just another source of stress when he looks at the numbers. The closure of the zoo alone had cost the city 600,000 euros ($651,000) in lost income by the end of April. This only added to lost tax revenues due to the largely shutdown economy (about 75 million euros), lost revenues from municipal theaters (around 2 million euros) and rising expenditures for the unemployed whose incomes have dipped below the threshold for qualifying for welfare (10 million euros).

According to Slawig's calculations, the city's debt will grow to 150 million euros due to the coronavirus. "I'm afraid the pandemic will eat up all the money we've managed to save in recent years," he says.

Prelude to a Massive Crash?

Whether in cities or states, private households or companies, the pandemic is causing revenues to shrink, even as costs continue to mount. For many, the only way out is through debt. Hardly any other event in the post-World War II era has created such a dramatic level of debts as the coronavirus.

Even before the outbreak, the global debt load had reached more than $250 trillion (230 trillion euros) -- three times higher than the world's annual combined gross domestic product. Governments around the world are issuing debt-financed bailouts worth trillions. The European Central Bank (ECB) and other central banks are injecting money into the economy with virtually no limits to prevent a collapse.

But how is this new mountain of debt ever going to be paid off? And by whom? In the end, some economists worry that the bailouts could result in a fatal combination of inflation and stagnation. A sort of post-crisis crisis, the bill for which will be footed by future generations. It begs the question: Is the pandemic merely the prelude to a massive crash? A financial crisis of epochal proportions that will drag companies, banks and governments into the abyss?

It's a bleak scenario. Companies that have lost business have been forced to take on debt and lay off employees. Ordinary people who were already heavily indebted before the coronavirus hit are no longer able to pay back their loans. Particularly in the United States, the land of installment credit, there is growing concern that millions of people could default on their car, house and student loans. But in Germany, too, consumers have paid for a lot of new things on credit thanks to low interest rates. If people, companies or even governments go bankrupt, this would hit the banks with full force and could trigger a new credit crisis like the one after the collapse of Lehman Brothers in 2008.

Uncharted Territory

Hans-Joachim Ziems has seen many companies go bankrupt. In 2002, the Cologne-based management consultant helped patch up Leo Kirch's media group. In 2009, during the financial crisis, Ziems helped prevent the collapse of Adolf Merckle's empire. Merckle's flagship companies, Heidelberg Cement and Ratiopharm, survived, though the self-made billionaire took his own life out of grief and shame over the debt he had accrued.

But a recession on such a massive scale, "from trade and industry to the service sector. This is uncharted territory for me too," Ziems says. In some sectors, the losses that are now being incurred cannot be made up. The crisis will cause companies' debt loads to rise sharply and lead to a wave of insolvencies.

Ziems is seeing first-hand how quickly liquidity can dwindle as debt piles up. A few months before the coronavirus had reached Europe, he was called in. First as a consultant for the automotive supplier Leoni, then to its restructuring board. The company produces cable harnesses and wiring systems for car manufacturers and had gotten itself into financial trouble. Ziems was asked to help get Leoni back on track. On March 13, the companies' lenders signed off on the company's restructuring plan. Ziems could expect 200 million euros in new liquidity. "A few days later, the lockdown began and we had to come up with a new plan," he says.

Leoni had to close down some of its plants and scale back employees' hours. The company wasn't able to lower its costs as quickly as its sales collapsed, and Ziems had to again ask the banks for more liquidity. The German government ultimately provided guarantees for new loans worth 330 million euros.

No Guarantees

Like Leoni, countless other companies have been going through the same thing in recent weeks. Corporations like Lufthansa as well as some tourism, catering and retail companies have watched as their sales have plummeted by more than 90 percent. Meanwhile, they're still on the hook for salaries, rent and other expenses. "Many companies must close the gap between revenues and costs by incurring new debts," says Jörg Krämer, chief economist at Commerzbank.

According to the Bank for International Settlements, no other recession in the modern era has hit companies around the world as hard as the shock from COVID-19. Without government assistance, half of all businesses would not be able to pay back their loans on time.

Wherever possible, firms have obtained money from capital markets or banks. The ECB has relaxed its capital rules and allowed European banks to grant up to 1.8 trillion euros in additional loans. Corporations like Daimler, Bertelsmann and Eon have issued bonds worth more than 100 billion euros since mid-March.

For companies that are unable to raise money in this way, the government is offering its assistance. Berlin is providing loans and guarantees worth more than a trillion euros through the state-owned development bank KfW. Within five weeks, the bank received more than 25,500 applications for loans worth 33 billion euros.

But this is only alleviating the immediate need for cash. The companies will eventually have to make good on their bonds and pay back their KfW loans, plus interest. Once the economy bounces back -- an outcome everyone is hoping will come sooner rather than later -- many companies will enter the next phase with a heavy debt load. And even that's not guaranteed.

A High Risk of Defaults

Credit rating agencies such as Standard & Poor's (S&P) assess the creditworthiness of companies, banks and countries. Currently, they're lowering ratings across the board due to soaring debts, indicating an increased risk of default. For companies seeking new loans, this means they'll have to pay higher interest rates to lenders, thereby further aggravating the difficult financial situation. At the same time, if an economic rebound is going to be possible, companies will need more capital in order to ramp up their production again. "Often it's the upswing after a crisis that breaks companies' backs," says Tobias Mock, S&P's managing director for corporates in Germany, Switzerland and Austria.

Mock expects that many companies won't be able to free themselves from this vicious cycle. "Defaults will increase significantly in the coming months and are expected to peak in 2021," he says. For bonds that S&P has rated "speculative," Mock expects the default rate in Europe to rise as high as 10 percent. Last December, that rate was only 2 percent.

That kind of development is not unusual. After the bursting of the dot com bubble in 2000, the real estate bubble in 2007 and the euro debt crisis in 2012, many companies started saving as their debt loads grew. "That was a brake on growth," says Commerzbank's Krämer. He suspects this will happen again: Companies will invest less and cut back on staff, which will "noticeably slow down the economic recovery."

Whether companies will even have time to recover from the crisis will largely depend on the banks. If experts like Mock are right, bad loans will soon begin piling up on bank's balance sheets. Then, just like in 2008 and 2009, it will become apparent which banks are strong enough to support ailing companies. Even before the coronavirus struck, European banks already had close to 600 billion euros worth of non-performing loans on their books. In Greece, bad loans account for more than 30 percent of banks' loan portfolios. In Italy, they account for 6.7 percent.

First Public Health, Then Public Finances

Concerns over banks' stability has apparently also reached the political realm. There is currently a debate in the European Union over whether rules for bailing out banks that were established after 2008 should be relaxed in order to provide ailing institutions with taxpayer money.

In the end, governments will be saddled with much of the risk anyway. Governments cannot allow a wave of bankruptcies among businesses or another crash in the banking sector. Former ECB President Mario Draghi recently admonished governments to take on the deficits of the private sector.

This would cause national debt all over the world to explode at a rate that is otherwise only seen in times of war. This year alone, the International Monetary Fund (IMF) expects government debt loads to grow by $8 trillion. That would put it at around 100 percent of annual global economic output. That would be almost as much as in Greece before the euro crisis.

Once it's finished ravishing public health, does this mean the virus will also destroy public finances?

Many economists consider this unlikely. In most developed countries, such loans are "easily affordable," says Olivier Blanchard of the New York-based Peterson Institute. Low interest rates made it easy for many governments to live on credit. Therefore, Blanchard says, there's little reason not to spend a lot of money. The more loans, the better.

But not all economists are convinced that the crisis can be overcome so easily. Hans-Werner Sinn, for example, the former president of the Munich-based Ifo Institute, considers it "appropriate to cushion the temporary crisis with higher government debt." But he's concerned by the fact that central banks around the world are helping governments by buying bonds on such a large scale.

Dangerous Inflation

The amount of central bank money in the eurozone will quadruple this year compared to what it was before the financial crisis, Sinn says. The coronavirus is causing the supply of goods and services to shrink. Too much money for too few goods -- this could usher back in an economic evil that seemed to have been eradicated: inflation. It's not a huge threat at the moment, Sinn says. "But once prices start to rise, it's hard to slow them down again."

Relieving the government's debt load through devaluation was a method that even late Roman rulers used. Since then, governments have repeatedly rid themselves of debt through inflation. Economists, including Sinn, therefore predicted a new wave of inflation even after the eurozone debt crisis was over.

But this never materialized. Instead, key interest rates fell to zero -- and in some cases, into negative territory or at least under the inflation rate. This has caused debt to shrink, albeit slowly. At the same time, however, it has caused the savings of those who invested their money in interest-bearing accounts or securities to shrink as well. The pandemic could keep interest rates extremely low for years or even decades to come. This is the only way for states, banks and companies to bear their debt burden without going bankrupt.

The countries most in danger of going bankrupt are the ones that were highly indebted long before the coronavirus struck. Many emerging and developing countries have taken out massive loans, often in foreign currencies like the dollar.

Now the markets for raw materials are collapsing, tourism has practically come to a standstill and their currencies are losing value. All this makes it even more difficult for these countries to service their debts. It's true that the International Monetary Fund recently temporarily suspended its interest and repayment claims for 25 of the world's poorest countries. But this is little more than symbolism.

Without drastic debt relief, economists predict that a number of states in Africa, Latin America and Asia will be forced to declare bankruptcy. The consequences for the financial industry would be catastrophic.

An 'Economy of Creeping Stagnation'

In Europe, too, the pandemic is exacerbating the economic divide. While northern countries have enough leeway to issue bailouts in the billions, many southern European states in the eurozone are being driven to the brink of ruin. In Spain, the looming recession will cause the country's debt ratio to skyrocket to just under 116 percent of its gross domestic product this year. In Italy, that ratio will jump to around 159 percent.

Ever since eurozone members began debating coronabonds and bickering over reconstruction loans again, the old doubts over the viability of the monetary union have returned. While southern countries feel abandoned by their northern bretheren, countries like the Netherlands, Austria and Germany are worried that Italy in particular could collapse under the weight of its credit burden. "Euroskeptics" in some important countries are "on the rise again," says Holger Schmieding, chief economist at the Hamburg investment bank Berenberg. This "political risk" for the monetary union is making financial markets nervous, he says. The interest rate differential between Italian and German government bonds has almost doubled since mid-February, increasing the danger that Europe could plunge into a currency crisis.

This new debt reality is creating a two-tiered global society. Many countries won't find it difficult to live on credit for a long time. For others, the loans they take on to get them through the coronavirus could be their downfall. They are facing a difficult balancing act: On the one hand, economic depression and unemployment are lurking. On the other, government bankruptcy.

Some countries could also face a fate like Japan's, which for many years has lived with extremely high national debt and an ultra-loose monetary policy. For Sinn, the former Ifo head, this could lead to a zombie economy of sorts, an "economy of creeping stagnation" characterized by ailing banks, sluggish companies and weak growth figures. "Germany should not strive for this outcome."

Geopolitics of the Coronavirus: A Global Challenge Needs a Global Response - Bernhard Zand (Der Spiegel)

Geopolitics in the Corona Era: A Global Challenge Needs a Global Response

An Analysis by Bernhard Zand

Der Spiegel, 20/03/2020

As European countries and the U.S. seal off their borders and turn inward in an attempt to slow the spread of the coronavirus, China is sending aid around the world. What the world really needs, though, is a coordinated response.

Serbian President Aleksander Vucic  threw a tantrum this week of a kind that should give us pause for thought. "European solidarity does not exist," he raged. "That was a fairy tale on paper." He complained that recently, Europe had sought to force Serbia to reduce its reliance on goods from China and import from Europe instead. Now that Serbia needs goods from Europe, though, "Serbian money is worth nothing."

Serbia, which isn't yet a member of the European Union club, would like to purchase protective suits and face masks from Europe to prepare for the coronavirus pandemic. But Europe isn't selling because "medical goods can only be exported to non-EU countries with the explicit authorization of the EU governments," as European Commission President Ursula von der Leyen announced earlier this week. "This is the right thing to do, because we need that equipment for our health-care systems."

So Vucic wrote a letter to Chinese President Xi Jinping, certain that Beijing would jump in to fill the void. "I believe in my brother and friend Xi Jinping, and I believe in China's help," he wrote.

"A Friend In Need Is a Friend Indeed"

It's a crazy situation: The government that initially tried to cover up the coronavirus outbreak, then implemented radical measures to fight it and slowly got it under control at great cost, is now being seen by a European leader as the savior in the corona crisis. And Beijing was more than happy to accept the compliment. "A friend in need is a friend indeed," wrote Chinese state news agency Xinhua. "When handshakes are no longer encouraged in Europe, China's helping hand could make a difference."

And that is how geopolitics work: If a vacuum appears, someone immediately jumps in to fill it.

The EU, of course, is fully aware that Beijing is on the lookout for such vacuums. Just a year ago, Brussels declared China to be a "systemic rival promoting alternative models of governance." Yet now, Europe is exposing a flank to that rival -- not just in the Balkans and Eastern Europe, where China has been trying to ramp up its influence for years, but even within the EU itself.

Rome "cried for help when it comes to ventilators and masks," said Italian Foreign Minister Luigi Di Maio. Italy's EU ambassador, Maurizio Massari, says that the European Commission forwarded Italy's request for medical equipment to the EU member states, "but it didn't work."

Meanwhile, two teams of Chinese doctors with aid supplies have arrived in Italy and a third is on the way. Spain, too, can count on assistance from China, said Xi Jinping following a telephone call with Spanish Prime Minister Pedro Sánchez. "Sunshine always comes after the rain," the Chinese president said. On Wednesday, Commission President von der Leyen announced that China would be providing 2 million masks to Europe, along with other supplies.

Beijing is also shipping aid supplies to Iran, Iraq and the Philippines. Jack Ma, the founder of the vast Chinese online retailer Alibaba, announced he was sending 20,000 test kits, 100,000 masks and 1,000 protective suits for doctors and nurses to each of the 54 countries in Africa. Previously, the Jack Ma Foundation and the Alibaba Foundation had sent aid supplies to Japan, South Korea and other countries.

Politics - and, by extension, geopolitics – does not come to a halt in times of crisis. On the contrary, they can become much more ruthless. That can be seen particularly clearly in the conflict between the U.S. and China, which has grown especially tense following months of a disastrous trade war. In February, Washington announced that Chinese state media representatives in the U.S. would be categorized as "foreign agents." One day later, Beijing threw out a trio of reporters from the Wall Street Journal, while on Tuesday of this week, the Chinese Foreign Ministry demanded that at least 13 reporters from the New York Times, the Washington Post and the Wall Street Journal turn in their press credentials. It is an unprecedented step.

At the same time, Beijing and Washington are exchanging accusations about who is responsible for the current crisis. U.S. President Donald Trump has taken to calling it the "Chinese Virus," while a spokesman for the Chinese Foreign Ministry in all seriousness suggested that soldiers from the U.S. Army may have brought the virus into Wuhan.

Nobody Will Lead the World Out of Its Current Misery Alone

During the global economic and financial crisis of 2008-2009, the U.S. and China consulted closely with each other. Washington pumped liquidity into the banking system while China set up a vast investment program to stimulate the real economy. Together with their partners in Europe and the Far East, the largest and then-third largest economies in the world managed to withstand the crisis.

Today, though, the two powers are far away from that kind of cooperation. China, now the world's second largest economy, didn't receive a single mention in Monday's statement from G-7 heads of state and government. For Beijing, which is not a member of the G-7, it is just another indication that China is all on its own.

"If we lose control, the pandemic will risk a new round of global and economic crises and social turmoil," a Chinese government adviser told the South China Morning Post. "So far, there is no coordinated global action, and we may not see one any time soon."

If climate change and the migration tragedies we have witnessed in recent years didn't make it obvious enough, COVID-19 is demonstrating it day in and day out: In crises like this one, some form of global government is needed, as premature and incomplete is it might end up being, given the pressures created by the unending slew of bad news.

Such crises require communication and cooperation far beyond national borders and even continental shores. Instead, though, we are seeing political and economic spheres of influence moving toward isolation.

Nobody will be able to lead the world out of its current misery alone. Not China, which felt a couple of days ago that it was seeing an end to the health crisis, only to now be fearful of the economic waves crashing over the globe. Not the U.S., whose president assured his people just a few days ago that the country was well prepared and who is now mobilizing hundreds of billions of dollars to ward off the worst of it. And not Europe either, which is closing national borders one country at a time and seems to be forgetting its neighbors.

Social distancing is the medical solution to the spread of the virus. But in global politics, we need quite the opposite.

Roubini on Coronavirus: Global Disaster - Tim Bartz (Der Spiegel)

I do not believe in a USA-Iran war, despite Trump's willingness to provoke one; but I do not think that Pentagon generals will allow it; there would be serious consequences for America, not only in foreign scenarios...
Paulo Roberto de Almeida

Star Economist Roubini on the Economic Effects of Coronavirus

"This Crisis Will Spill Over and Result in a Disaster"

Economist Nouriel Roubini correctly predicted the 2008 financial crisis. Now, he believes that stock markets will plunge by 30 to 40 percent because of the coronavirus. And that Trump will lose his re-election bid.

Interview Conducted by Tim Bartz

Der Spiegel, Hamburgo – 28.2.2020

Nouriel Roubini is one of the most prominent and enigmatic economists in the world. He correctly predicted the bursting of the U.S. housing bubble in addition to the 2008 financial crisis along with the ramifications of austerity measures for debt-laden Greece. Roubini is famous for his daring prognostications and now, he has another one: He believes that coronavirus will lead to a global economic disaster and that U.S. President Donald Trump will not be re-elected as a result.

DER SPIEGEL: How severe is the coronavirus outbreak for China and for the global economy?

Roubini: This crisis is much more severe for China and the rest of the world than investors have expected for four reasons: First, it is not an epidemic limited to China, but a global pandemic. Second, it is far from being over. This has massive consequences, but politicians don’t realize it.

DER SPIEGEL: What do you mean?

Roubini: Just look at your continent. Europe is afraid of closing its borders, which is a huge mistake. In 2016, in response to the refugee crisis, Schengen was effectively suspended, but this is even worse. The Italian borders should be closed as soon as possible. The situation is much worse than 1 million refugees coming to Europe.

DER SPIEGEL: What are your other two reasons?

Roubini: Everyone believes it’s going to be a V-shaped recession, but people don’t know what they are talking about. They prefer to believe in miracles. It’s simple math: If the Chinese economy were to shrink by 2 percent in the first quarter, it would require growth of 8 percent in the final three quarters to reach the 6 percent annual growth rate that everyone had expected before the virus broke out. If growth is only 6 percent from the second quarter onwards, which is a more realistic scenario, we would see the Chinese economy only growing by 2.5 to 4 percent for the entire year. This rate would essentially mean a recession for China and a shock to the world. 

DER SPIEGEL: And your last point?

Roubini: Everyone thinks that policymakers will react swiftly but that’s also wrong. The markets are completely delusional. Look at fiscal policy: You can do fiscal stuff only in some countries like Germany, because others like Italy don’t have any leeway. But even if you do something, the political process requires a great deal of talking and negotiating. It takes six to nine months, which is way too long. The truth is: Europe would have needed fiscal stimulus even without the corona crisis. Italy was already on the verge of a recession, as was Germany. But German politicians aren’t even thinking about stimulus, despite the country being so exposed to China. The political response is a joke - politicians are often behind the curve. This crisis will spill over and result in a disaster. 

DER SPIEGEL: What role do the central banks have to play?

Roubini: The European Central Bank and the Bank of Japan are already in negative territory. Of course, they could lower rates on deposits even further to stimulate borrowing but that wouldn’t help the markets for more than a week. This crisis is a supply shock that you can’t fight with monetary or fiscal policy.

DER SPIEGEL: What will help?

Roubini: The solution needs to be a medical one. Monetary and fiscal measures do not help when you have no food and water safety. If the shock leads to a global recession, then you have a financial crisis, because debt levels have gone up and the U.S. housing market is experiencing a bubble just like in 2007. It hasn’t been a time bomb so far because we have been experiencing growth. That is over now.

DER SPIEGEL: Will this crisis change the way the Chinese people think of their government?

Roubini: Businesspeople tell me that things in China are much worse than the government is officially reporting. A friend of mine in Shanghai has been locked in his home for weeks now. I don’t expect a revolution, but the government will need a scapegoat.

DER SPIEGEL: Such as?

Roubini: Already, there were conspiracy theories going around about foreign interference when it comes to swine flu, bird flu and the Hong Kong uprising. I assume that China will start trouble in Taiwan, Hong Kong or even Vietnam. They’ll crack down on protesters in Hong Kong or send fighters over Taiwanese air space to provoke the U.S. military. It would only take one accident in the Strait of Formosa and you would see military action. Not a hot war between China and the U.S., but some form of action. This is what people in the U.S. government like Secretary of State Mike Pompeo or Vice President Mike Pence want. It’s the mentality of many people in D.C.

DER SPIEGEL: This crisis is obviously a setback for globalization. Do you think politicians like Trump, who want their companies to abandon production abroad, will benefit?

Roubini: He will try to reap benefits from this crisis, that’s for sure. But everything will change when coronavirus reaches the U.S. You can’t build a wall in the sky. Look, I live in New York City and people there are hardly going to restaurants, cinemas or theaters, even though nobody there has been infected by the virus thus far. If it comes, we are totally fucked.

"Trump is dead. Quote me on that!"

DER SPIEGEL: A perfect scare-scenario for Trump?

Roubini: Not at all. He will lose the election, that’s for sure.

DER SPIEGEL: A bold prediction. What makes you so sure?

Roubini: Because there is a significant risk of a war between the U.S. and Iran. The U.S. government wants regime change, and they will bomb the hell out of the Iranians. But Iranians are used to suffering, believe me, I am an Iranian Jew, and I know them! And the Iranians also want regime change in the U.S. The tensions will drive up oil prices and lead inevitably to Trumps defeat in the elections.

DER SPIEGEL: What makes you so sure?

Roubini: This has always the case in history. Ford lost to Carter after the 1973 oil shock, Carter lost to Reagan due to the second oil crisis in 1979, and Bush lost to Clinton after the Kuwait invasion. The Democratic field is poor, but Trump is dead. Quote me on that!

DER SPIEGEL: A war against Iran is needed to beat Trump?

Roubini: Absolutely, and it’s worth it. Four more years of Trump means economic war!

DER SPIEGEL: What should investors do to brace for the impact?

Roubini: I expect global equities to tank by 30 to 40 percent this year. My advice is: Put your money into cash and safe government bonds, like German bunds. They have negative rates, but so what? That just means that prices will rise and rise - you can make a lot of money that way. And if I am wrong and equities go up by 10 percent instead, that’s also OK. You have to hedge your money against a crash, that is more important. That’s my motto: "Better safe than sorry!"

Nouriel Roubini prevê a derrota de Trump (essa é a manchete mais importante...)

Essa matéria exagera um pouco, e mente em algumas outras previsões. Muitos outros economistas previram a crise de 2008, a começar por Roberto Schiller, prêmio Nobel (depois), que já tinha apontado a bolha imobiliária desde 2005. A matéria tampouco diz que Roubini previu  DEZ das últimas DUAS crises.
Que a Bolsa caia, está correto. Ela tinha subido muito nos últimos meses e anos, numa dessas repetições da "exuberância irracional", que também já tinha sido apontada por Alan Grenspan (presidente do Fed) desde 2006.
Não sei se teremos um desastre ainda maior do que em 2008: é possível, mas também as coisas nunca se passam como prevêem os economistas da Dismal Science. 
Por outro lado, considero sua previsão de DERROTA do Trump muito MAIS IMPORTANTE do que qualquer crise internacional ou americana. Vou apostar no Roubini no meu próximo lance de mercado. Se ele errar, vou cobrar...
Na verdade, eu preferia que o Trump fosse derrotado por ser um ignorante econômico, um idiota político, um xenófobo, misógino, racista, antiglobalista, não pelo CODIV-19. Na verdade, Roubini, um judeu iraniano, prevê que Trump será derrotado não tanto pelo virus, mas pelo aumento do preço do petróleo, que decorreria de uma guerra dos EUA contra o Irã, por mudança de regime, o que eu não acredito (os generais do Pentágono não vão se meter nesse loucura só por causa das obsessões do Trump).
Mas, se o corona virus derrotar o Trump, vou escrever uma crônica em homenagem à epidemia; aliás, historiadores econômicos dizem que a Peste Negra, ao eliminar 1/4, 25% da população europeia, serviu para impulsionar tremendamente a inovação e a produtividade...
Há males que veem para o bem. Viva o corona virus (mas só se o Trump perder...)
Paulo Roberto de Almeida

PS.: Transcreverei o original completo da entrevista na postagem sequencial.

Economista que previu crise de 2008 prevê desastre ainda maior em 2020

Der Spiegel, 1 de março de 2020, 13:46 h

O economista Nouriel Roubini previu corretamente a crise financeira de 2008. Agora, ele acredita que o mercado de ações cairá de 30 a 40% por causa do coronavírus. E que Trump perderá a reeleição

Para economista Nouriel Roubini, que previu crise global de 2008, se não houver ajuste fiscal, país será rebaixado e real entrará em queda livre: “O Brasil não está fadado a uma crise. Existe um caminho, embora seja difícil e exija coragem política de quem quer que esteja no poder. Para as coisas se estabilizarem, é necessário um ajuste fiscal, não há escapatória” (Foto: Roberta Namour)

Carta Maior - Nouriel Roubini é um dos economistas mais importantes e enigmáticos do mundo. Ele previu corretamente o estouro da bolha imobiliária nos EUA, além da crise financeira de 2008, juntamente com as implicações de medidas de austeridade para a Grécia, carregada de dívidas. Roubini é famoso por seus prognósticos ousados, e agora, ele tem novos: ele acredita que o coronavírus levará a um desastre econômico global e que o presidente dos EUA, Donald Trump, como resultado, não será reeleito.

Qual a gravidade do surto de coronavírus para a China e para a economia global?

Essa crise é muito mais grave para a China e para o resto do mundo do que os investidores esperavam por quatro razões: primeiro, não é uma epidemia limitada à China, mas uma pandemia global. Segundo, está longe de terminar. Isso tem consequências enormes, mas os políticos não percebem isso.

Como assim?

Basta olhar para o seu continente. A Europa tem medo de fechar suas fronteiras, o que é um grande erro. Em 2016, em resposta à crise dos refugiados, o Acordo de Schengen foi efetivamente suspenso, mas esta crise é ainda pior. As fronteiras italianas deveriam ser fechadas o mais rápido possível. A situação é muito pior do que a chegada de 1 milhão de refugiados à Europa.

Quais são as duas outras razões?

Todo mundo acredita que será uma recessão em forma de V, mas as pessoas não sabem do que estão falando. Eles preferem acreditar em milagres. É uma conta simples: se a economia chinesa encolher 2% no primeiro trimestre, será necessário um crescimento de 8% nos três últimos trimestres para atingir a taxa de crescimento anual de 6%, que todos esperavam antes do vírus eclodir. Se o crescimento for de apenas 6% a partir do segundo trimestre, que é um cenário mais realista, veremos a economia chinesa crescendo apenas entre 2,5 e 4% durante o ano como um todo. Essa taxa significaria essencialmente uma recessão para a China e um choque para o mundo.

E seu último ponto?

Todo mundo pensa que os formuladores de políticas reagirão rapidamente, mas isso também está errado. Os mercados estão completamente iludidos. Veja a política fiscal: você pode tomar ações fiscais apenas em alguns países, como a Alemanha, porque outros, como a Itália, não têm margem de manobra. Mas, mesmo que você faça algo, o processo político exige muita conversa e negociação. Isso leva de seis a nove meses, o que é um tempo excessivamente longo. A verdade é que: a Europa precisaria de estímulo fiscal mesmo sem a crise da coronavírus. A Itália já estava à beira de uma recessão, assim como a Alemanha. Mas os políticos alemães nem sequer estão pensando em estímulo, apesar de o país estar tão exposto à China. A resposta política é uma piada - os políticos estão frequentemente atrasados. Essa crise transbordará e resultará em um desastre.

Que papel os bancos centrais devem desempenhar?

O Banco Central Europeu e o Banco do Japão já estão em território negativo. É claro que eles poderiam reduzir ainda mais as taxas de depósitos a prazo para estimular empréstimos, mas isso não ajudaria os mercados por mais do que uma semana. Essa crise é um choque de oferta que você não pode combater com política monetária ou fiscal.

O que ajudará?

A solução precisa ser médica. As medidas monetárias e fiscais não ajudam quando você não tem segurança de alimentos e água. Se o choque levar a uma recessão global, você terá uma crise financeira, porque os níveis de endividamento aumentaram e o mercado imobiliário dos EUA está passando por uma bolha, como em 2007. Até agora, ainda não se tornou uma bomba-relógio porque temos crescido. Isso acabou agora.

Essa crise mudará a opinião do povo chinês sobre seu governo?

Os empresários me dizem que as coisas na China são muito piores do que o governo está relatando oficialmente. Um amigo meu em Xangai está trancado em sua casa há semanas. Não espero uma revolução, mas o governo precisará de um bode expiatório.

Por exemplo?

Já existiam teorias da conspiração sobre interferências estrangeiras quando se tratou da gripe suína, da gripe aviária e do levante de Hong Kong. Suponho que a China começará a conflitar com Taiwan, Hong Kong ou mesmo com o Vietnã. Eles vão reprimir os manifestantes em Hong Kong ou enviar combatentes pelo espaço aéreo de Taiwan para provocar as forças armadas dos EUA. Só seria necessário um acidente no Estreito de Formosa e você veria uma ação militar. Não uma guerra quente entre a China e os EUA, mas alguma forma de ação. Isto é o que querem pessoas no governo dos EUA, como o secretário de Estado Mike Pompeo ou o vice-presidente Mike Pence. É a mentalidade de muitas pessoas em Washington.

Esta crise é obviamente um retrocesso para a globalização. Você acha que políticos como Trump, que querem que suas empresas abandonem a produção no exterior, serão beneficiados?

Ele tentará colher benefícios dessa crise, com certeza. Mas tudo mudará quando o coronavírus chegar aos EUA. Você não pode construir um muro no céu. Olha, eu moro na cidade de Nova York e as pessoas têm ido muito pouco a restaurantes, cinemas ou teatros, mesmo que ninguém tenha sido infectado pelo vírus até agora. Se vier, estamos completamente fodidos.

Um cenário de pavor perfeito para Trump?

De maneira alguma. Ele perderá a eleição, com certeza.

Essa é uma previsão ousada. O que faz você ter tanta certeza?

Porque existe um risco significativo de uma guerra entre os EUA e o Irã. O governo dos EUA quer uma mudança de regime e bombardeará os iranianos. Mas os iranianos estão acostumados a sofrer, acredite, sou judeu iraniano e os conheço! E os iranianos também querem mudança de regime nos EUA. As tensões elevarão os preços do petróleo e levarão inevitavelmente à derrota de Trump nas eleições.

O que faz você ter tanta certeza?

Isso sempre acontece na história. Ford perdeu para Carter após o choque do petróleo em 1973, Carter perdeu para Reagan devido à segunda crise do petróleo em 1979 e Bush perdeu para Clinton após a invasão do Kuwait. O campo democrata é fraco, mas Trump está morto. Cite-me sobre isso!

É necessária uma guerra contra o Irã para vencer Trump?

Com certeza, e vale a pena. Mais quatro anos de Trump significa guerra econômica!

O que os investidores devem fazer para se preparar para o impacto?

Minha expectativa é que as ações globais acumulem perdas entre 30 e 40% este ano. Meu conselho é: deixe seu dinheiro líquido ou em títulos públicos seguros, como nos bunds alemães [títulos do governo alemão]. Eles têm taxas negativas, mas e daí? Isso significa apenas que os preços vão subir e subir - você pode ganhar muito dinheiro dessa maneira. E se eu estiver errado e as ações subirem 10%, também estará tudo bem. Você precisa proteger seu dinheiro contra um craque, o que é mais importante. Esse é o meu lema: "Melhor prevenir do que remediar!"

*Publicado originalmente em 'Spiegel Internacional' | Tradução de César Locatelli