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Europe must move fast and limit the economic damage

Colm McCarthy


Covid-19 has left the financial system in a state of shock and the European Central Bank faces a prospective crisis

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TROUBLE AHEAD: ECB chief Mario Draghi must move quickly to shore up economies across the Eurozone

TROUBLE AHEAD: ECB chief Mario Draghi must move quickly to shore up economies across the Eurozone

TROUBLE AHEAD: ECB chief Mario Draghi must move quickly to shore up economies across the Eurozone

Facebook founder Mark Zuckerberg gave the world the motto ''Move Fast and Break Things'', celebrating the disruption culture of the Silicon Valley innovators. The things Zuckerberg proposed to break were the out-dated business models of stuffy old offline competitors, not the architecture of the international trade and finance system. If there can be a motto to guide Europe through the Covid-19 epidemic, it should be ''Move Fast, and Break as Little as Possible''. Don't damage the channels of international commerce, and don't place strains on government funding and the banking system, inflicting on the shrunken economies a financial crisis to accompany the unfolding public health tragedy.

Whether European governments have obeyed the injunction to move fast on fighting the virus remains to be seen. Some have moved faster than others but at EU level they may be breaking things, intent on risking an avoidable financial crisis in the Eurozone. In the aftermath of the post-2008 crash, the European Central Bank under Jean-Claude Trichet moved slow, and broke the sovereign bond market. Last week, his successor Mario Draghi, he of the ''whatever it takes'' speech in July 2012 which saved the Eurozone from break-up, likened the current emergency to a war. Central banks have always financed governments without hesitation in wartime and Draghi knows his economic history.

Following the Glorious Revolution of 1688, William III arranged to sell debt (the royal origin is why it is called ''sovereign'' debt to this day) through a syndicate of London merchants, many of them members of parliament. The syndicate morphed into the Bank of England, and the outstanding securities came to be known as the national debt. The best measure is the net financial obligation of the state, including the central bank, to non-state debt holders domestic or foreign.