The international political agenda should focus on defusing the threat of post-pandemic global economic conflicts, GMF report says

The international political agenda should focus on defusing the threat of post-pandemic global economic conflicts, GMF report says

The international agenda should focus on defusing the threat of post-pandemic global economic conflicts in the months ahead, the German Marshall Fund of the United States (GMF) said in a report. 

The GMF aims to strengthen transatlantic cooperation on regional, national, and global challenges and opportunities in the spirit of the Marshall Plan. The organization contributes to research and analysis and convenes leaders on transatlantic issues relevant to policymakers.

The world economy is headed for a recession, if not a depression. Goldman Sachs forecasted the US economic output to contract by 3.8 per-cent in 2020. The German economy is predicted to shrink by 4.2 per-cent and the French GDP by 6 per-cent in the first quarter of the year.

“While the world is preoccupied with coping with the human toll wrecked by the coronavirus pandemic, the stage is rapidly being set for profound global economic conflicts in the months ahead,” Bruce Stokes, a non-resident transatlantic fellow at the GMS argues in a report

Stokes calls for immediate economic measures to be coupled with further recovery efforts to aggravate long-festering policy differences between the US, China, Europe, and Japan.

Governments from around the world need to put in place recovery plans to mitigate post-pandemic economic frictions. “This should include looking for new understandings on permissible government aid and nationalization (…) what to do about unprecedented levels of peacetime debt, (…) and how to safeguard national companies from predatory foreign investors,” Stokes said. 

Western governments and central banks, chastened by their slow recovery from the 2008 financial crisis, which was associated with inadequate initial spending, have now brought out their ‘financial bazookas’.

The US announced that it will make available at least $500 billion in loans to US companies. The UK also unveiled its plans to provide at least $400 billion in loan guarantees. Germany, which has promised to dip into its budget surplus, has already pledged $550 billion. 

The GMS argues that this funding will “sow the seeds for future conflict”. 

the US is now considering taking an equity position in domestic air carriers in return for state aid, as it did with the automotive industry in the wake of the Great Recession.

“The US, Europe, and others need to come up with common guidelines on what foreign investors can and cannot purchase: what is strategic and what is not. If they fail to do so, those with deep pockets—be they Chinese companies or US hedge funds—will play one country off against the other, feeding nationalist, populist backlashes,” Stokes said. 

“There is an immediate and obvious need for a massive economic response to the coronavirus pandemic and the deepening global recession. But the urgency of the immediate should not blind us to inevitable future problems that are within our power to defuse,” Stokes concluded.  

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