With second lockdowns incoming, or already happening in most European countries. The damage to economies will yet again be severe. While one should not make our GDP or economy into a false idol. It’s also dangerous to underestimate, what reckless management of the economy can lead to. The lockdowns are a great example, while governments have tried to kill all economical activities to manage the virus. Yet, the bigger long term consequence of the COVID lockdowns will be debt. This entire crisis is a debt-palooza.
States & Debt
As European governments instituted lockdowns, economies suffered. Businesses made less profits, consumers spent less, additional people on welfare, lost tax incomes etc. These things all negatively impacted the government financially. Fiscal deficits started to rise and governments do what they always do, they borrow money. Debt ratios in EU countries like France are expected to rise 20%, in Spain and Italy this could even be 30%.
We can argue if loaning money, to spend & invest heavily, is a good way to stimulate the economy. There are arguments to be made for both sides, It hasn’t always led us to long term financial ruin when managed well. However, the COVID lockdowns are different. Usually when this method is employed successfully, the government is trying to sincerely revive the economy. Now, the government at the same time is creating extra regulatory pressure, new laws and guidelines, or is even outright closing down businesses. All to stop the Virus, which is fantastic and all. But, borrowing money to revive the economy while we are strangling it? Some experts tell us it might not even be the last lockdown. Even worse, there might come a new even ‘scarier’ virus in the near future.
So, we don’t know when there is light at the end of the tunnel. Our governments are massively spending our money to enact lockdowns and COVID measures or to compensate. Government testing, police enforcement of measures, employees working on this etc. We can argue on the merits of these individual concepts, they are mostly attacking the symptoms of the problem and not really addressing the root cause. This is logical however, not a good policy when you want to go into debt to invest and earn it back. It isn’t sound financial policy. Governments by all measures are spending recklessly and at the same time are enacting contradictory policies. We can quite safely assume that this debt isn’t going to be well managed, at least not in coming years. The problem is going to get bigger and bigger.
You may ask, how does this impact me? These debts in the short term definitely will not have a big impact on you. However, the possible future austerity measures to solve them, inflation or the long term financial deterioration of your country will definitely hit you or your children at one point.
Households/Individual & Debt
Half of European small and medium-sized businesses say they face bankruptcy within a year if revenues don’t pick up. While big multinationals might not have a personal face, small and medium-sized businesses tend to be run by families or entrepreneurs who might have put up their house as collateral. When these people will go bankrupt, every bankruptcy will have a huge personal impact on their families and debts. Not only will it slowly tear apart the fabric of our society, but these people will also be plunged into personal debts. Personal debts are pernicious, it takes a long time to get rid of them and has a big impact on a person’s life & wellbeing.
Company owners aren’t the only group who are going to be hit hard. While Europe is relatively wealthy, there is definitely a big group that works hard but just barely make ends meet. Not all of these people can be blamed for their circumstances, yet they are most likely to be laid off during initial economic shocks. Usually, because they are low on skills and education. These are usually the people who make most of the use of our welfare systems. They yet again will be forced back into the breadlines, they might start going into credit card debt, go to loan sharks. Can we truly blame them for doing so when the government forces them in unlivable and indecent conditions?
Why does it matter?
In the long term, the debts of states will come to haunt you and your descendants. In the short term, you might be lucky. But those who aren’t lucky, who will be exploited and impoverished? They will be angry and resentful. Let us not drive the working man to communism through the unchecked greed or incompetence of the government and the elites. Government employees and the elites don’t really mind the lockdown, their money keeps coming in. They aren’t in debt, you are.