The blackout. How the coronavirus shook the world economy

Adam Tooze and Ricardo de Querol

On 28 September 2021 at 18.30, the Rafael del Pino Foundation organised a live dialogue via the Internet on entitled "The blackout. How the coronavirus shook the world economy" in which Adam Tooze and Ricardo de Querol spoke on the occasion of the publication of the Spanish version of Adam Tooze's work of the same title, published by Crítica.

Adam Tooze is Kathryn and Shelby Cullom Davis Professor of History at Columbia University and has also taught at Cambridge and Yale Universities. He is the author of The Wages of Destruction (2006), The Flood (Crítica, 2016) and Crash (Crítica, 2018), and has received the Wolfson History Prize, the Longman-History Today Book of the Year Prize and the Lionel Gelber Prize.

Ricardo de Querol Alcaraz holds a degree in Information Sciences from the Complutense University of Madrid. He began his career in 1988 at the daily Ya and worked for more than 10 years for Diario 16. In 1997 and 1998 he was director of the daily Tribuna de Salamanca. In 2002 he joined Cinco Días, where he was editor-in-chief and deputy editor. In 2006 he joined EL PAÍS, where he has been editor-in-chief of Sociedad, Mesa Digital and Babelia. Since March 2016 and until last September he has been the director of Cinco Días. He was also responsible for the launch of El País Retina. Since January 2019 he has been deputy editor of El País.


On 28 September 2021, the Rafael del Pino Foundation organised a dialogue with Adam Tooze, Kathryn and Shelby Cullom Davis Professor of History at Columbia University, entitled "The Blackout. How the coronavirus shook the world economy", on the occasion of the publication of the Spanish version of his book of the same title.

Tooze believes we are living through the first global crisis of the Anthropocene. Many of us were very concerned at the beginning of the 21st century about what seemed to be the most important crisis affecting us, which was the climate. Suddenly we were shocked by the impact of the pandemic. The pandemic was moving faster than the climate crisis, so that each of us was the danger threatening the others. We could affect the whole of humanity in a very short time. The scale of the pandemic is also enormous, as are the measures we put in place to fight it. This has had an unprecedented economic impact.

If we look back to the mid-1970s, as we became aware of the climate crisis, another group of scientists was looking at emerging communicable diseases, which had pandemic-like features, e.g. the lack of balance between humanity and nature, the risk in laboratories, the attempt to manipulate nature. Add to that air travel around the world, and we should be very lucky to avoid a biological crisis. What has happened in 2020 is that this prediction has come true. If we look at the recent past and think about swine flu, bird flu, SARS, if we had focused on that and agreed to recognise that these are problems, like the reality of climate change, none of what has happened would have surprised us. So those of us who used to think that the big threat to humanity was climate change now have to add this concern as well in order to understand the risks we face.

As far as the orthodoxy of economic policy is concerned, the response to the pandemic has taken us back to Keynesian times. If we ask about power, about how we govern, to what extent neoliberal governance has been weak, we see that neoliberalism has been a social project for class demobilisation. It was a regime to make politics make a certain kind of inequality sustainable. But now, in effect, these new policies of fiscal and monetary stimulus are being deployed.

However, we must not confuse things. Let's not think that we are in a time capsule that allows us to go back to 1945 in the United States, or to Germany in the 1960's. No, that has changed radically. So these policies that might seem Keynesian are being implemented in a way that might seem conservative. In fact, they stabilise a social system that has been transformed by the neoliberal impact, a system of very deep inequalities.

To make matters worse, if there were only one dimension that would allow us to explain this rupture, that dimension would be geopolitics, which has always been part of the neoliberal project. Neoliberalism was not just Milton Friedman or Austrian economics. It was also an American project to anchor the Washington Consensus. This has been broken, but it has not given rise to a new internationalism, to a social democracy. On the contrary, it opens the door to a new cold war horizon and, in the case of the United States, to a firm commitment to hard power for an entire generation.

We have had some success in managing the crisis because we have learned from the mistakes of the 2008 crisis. History is worth studying because we learn from it. We see this because the events of 2008 have had an effect on the Ministry of Finance in Berlin, on the European Central Bank, on the Federal Reserve, on the advisors of centrist politicians. These people have been digesting the consequences of what they see as policy mistakes for twelve years and have been able to adjust to them.

The Federal Reserve, which has taken actions on an extraordinary scale in historical terms, far more than the European Central Bank has. Those responsible for these actions are veterans of the 2008 crisis. They know how to buy bonds at tremendous speed. The European Central Bank has also changed its approach. Its policy in that crisis was a way of strangling the European economy, but this is not going to happen with the current team. The third place where this learning has taken place is in the team around the German finance minister. These people have digested the disaster that turned out to be German policy in the Eurozone. That is why Paris and Berlin signed an explicit agreement to act, approving the Eurobond. Europe was on the brink of disaster, but managed to turn the tide.

If you are committed to democracy, to equality, you have to rethink governance. The question is how to do it, what coalition will be able to mobilise. Moments of transition reflect this fact. We see it in the welfare state in the 1930s and 1940s, also in neoliberal moments. The underlying forces vary so that something has happened in this moment that has exacerbated existing inequalities. So we see that Sanders and Corbyn have disappeared from the scene, but other things are going to happen. We can see it in relation to people. There were very capable people in the Sanders campaign who are now advising Biden. There is a big debate going on in Washington about trillions of dollars. It's an internal politics to see if things can be changed. It's not what you would want, but it's what you have at the moment and you're going to make some progress.

At the beginning of the crisis we were on the edge of the abyss. The financial crisis was serious in the United States and it was a terrible time. The 2008 crisis was terrible. It was a private sector crisis, based on a real estate crisis, which then affected the banking sector. In the normal countries of the world, not in Europe under Trichet, the government was able to protect. Europe, on the other hand, managed to destabilise public debt. As a result, there were countries, including Spain, that were immersed in the nefarious spiral of deficit and debt. Spain has a large economy, but not as large as that of the United States.

In the second and third week of March 2020, we saw Treasury bond prices plummeting. Everything was sold, Treasuries and corporate bonds, and, even worse, you could not sell large amounts of bonds without bargaining. This is very important because, when we say that the dollar is the hegemonic currency, we are not talking about the dollar; we are talking about Treasury bonds. There are 21 trillion dollars in bonds held by individuals. This is the anchor of the system. This market is very important for investors because it is of such a size that we can assume that whatever the problem is that leads to selling bonds, this problem will not destabilise the market. This is essential for portfolio calculations because you can calculate that a portfolio of bonds is going to pay some interest, but it is like holding cash because, whatever the price, bonds can be sold. That assumption collapsed in the third week of March. When that happens, it destabilises the rest of the portfolio because you can only hold on to those less liquid assets that give more return if you know you have your piggy bank and bonds were no longer that.

This situation triggered a panic that forced the Fed to act as it did. The Fed would not have done so if it had not been extremely concerned about the stability of the system.

If we consider that we are in the Anthropocene, we have to recognise that there have been a number of crises. The question is whether we can consider normalising monetary policy. We would have to consider radical steps, dismantling the whole structure. In 2008 we discovered that the balance sheets of investment banks were fragile. We eliminated the investment banks, which were taken over by commercial banks. In 2020 there was no banking crisis. What we discovered was that the bond market itself could be threatened, so it needs monetary support. So what do we do? Do we move towards radical reform? Well, maybe yes, but is such a proposal realistic? If it is not, we would have to come up with more robust and different measures.

The capitalism we know right now is not like a rowboat sailing on calm waters, but like a rowboat going down the rapids, so it needs a lightning reaction and a lot of strength to handle it.

When we think about that river going down, we need all the help we can get, so we cannot be puritanical about monetary policy or fiscal policy. This is not a traditional welfare state. There are certain components of it in Europe that have been updated. The European experiment has been very successful. This has consequences for the government's fiscal balance. If it were leading to problems you would see it in the bond market, but, right now, Spain, Italy and Greece can borrow at better interest rates than the United States. This is a political decision, not a result of economic reality. This is not a requirement for financial stability, but a political choice. Since 60% of the population lives in states with debt levels above 60% of GDP, the withdrawal of support measures represents a threat to the sovereign debt of the Eurozone. We would have to debate whether we want to become Japan, which is the fear. The debt-to-GDP ratio is now around 100%, so we are a long way from Japan. Italy, which with a debt of more than 150% is the worst case in Europe, is also at a great distance from Japan. This is why we should talk about this issue, but not because we consider that this issue is in a hurry. People would have to be prepared to pay a tremendous price. It's not a question of sticking to what was agreed in Maastricht in the 1990s. There is also fetishism in politics, but we have to be very aware of what we are talking about.

At the beginning of the pandemic, the risks were underestimated. Politicians were travelling around the world non-stop and, at that time, they did not recognise that Covid was going to affect them. We thought the Chinese were doing authoritarian, undemocratic things. We thought this was not our problem. This was the mistake. Everybody failed. There were very few countries that knew how to react. South Korea was very lucky because they had overcome MERS and they knew how to act. But when you are dealing with an exponential process like this, what you do at the beginning is what determines the future because the exponential curve is such that if you don't make the right decision, you are going to fail. There was a huge economic cost and millions of lives lost. Right now, knowing what the risks are and realising that new variants have emerged, we are still not focusing on the problem. Where are the billions that should be being invested in Europe to study pandemics? No money is being spent on that. Europe is investing money in digital and climate, which is fine. But it should also have a biotech programme. There is a very small one, but it should be bigger.

We have to bear in mind that no one is safe unless everyone is safe. That's why you have to know how many people are being vaccinated every day in Brazil or Peru, because being able to go on holiday, or being able to finish your studies, depends on these vaccination figures.

The issuance of Eurobonds could be a new step towards European unity. The Spanish government has been very patient and its contribution to getting to this point has been very important. The Spanish have had to put up with a lot of impertinence and a lot of nonsense. The Germans and the Austrians should examine their consciences. But these are political issues. Now we have to see who wins the elections in Germany and how the seats are distributed. The micro-politics of the coalitions will have a big influence on this. We already have the eight austerity countries, which have their programmes ready. Germany has not said anything so far. This will depend on who is in the German finance ministry. If you make a comparison with 2008, we could take comfort in the fact that we overcame that disaster. Austerity policies started in 2010, but more broadly, the crisis was only contained in 2012. 2022 is the moment of truth because that is when we will see what Europe has learned about fiscal policy and the actions of the European Central Bank. It would be great if the ECB kept doing what it is doing, but there are fears that this issue will become politicised. As soon as it suspends its bond-buying programme, Greece may go into crisis because it has a debt-to-GDP ratio of 210%.

Regarding China, this is like a football match. It is as if China scores two goals in the first half and in the second half the other team spends the whole forty-five minutes scoring goals. The Chinese regime does not respect the rights of citizens, but it did guarantee the security of the population. Now it has failed to do so. China is a country where there are many pandemics. It is essential to avoid them if the country is to be perceived as a modern economy. The economic damage in China has been tremendous. There are parts of the Chinese economy that are rich, modern and outward-looking, but the majority of Chinese people live in poverty. Their failure, therefore, is the own goal. The reaction to Hong Kong, the policy towards the oligarchs are manifestations of the Chinese government's chest-thumping. China is a power, it is moving fast, it has just joined the world's most important trade agreement, but the question to ask in 2021 is whether we are in that game. Because this game in which China wins, in terms of GDP, is not the one in which the United States is in, which has made it clear that this is not its game. The US has announced hard power and it's not going to stop. They are not considering whether Huawei sells phones there or in Spain. No, what they are looking at is Huawei's infrastructure, they have gone to the root of the supply chain to the Dutch companies, which are the ones that manufacture the essential machinery for the chips, and they are cutting off China's access to these companies. It affects GDP, but more importantly it affects sovereignty. So what the Americans are saying is that they are going to define the level of technology to which China is going to evolve. But China is not going to accept that.

Without China there is no solution to climate change, because they are the problem. They account for 28% of global emissions. They have grown tremendously in emissions in recent years. They have changed the economic story as we knew it and, incidentally, the climate balance. They have to make very difficult choices because they are based on coal. We talk about this problem as if China is paying attention to us, but the opposite is true. What we do doesn't matter very much. They have to act because, for China, the climate crisis is a matter of life and death. For India too. There are going to be droughts, famines, everything, unless they manage to stabilise it.

The EU's views on the climate crisis are innovative, but it is uncertain whether its programme is the right one. In fact, it is not. There are going to be tough negotiations. There is going to be talk about gas, the price of which is rising and there is going to be a backlash. The future of diesel cars is going to be discussed. It is going to be a tough battle where, again, there is going to be more politics. We need powerful, sustainable coalitions of democratic governments, because that is the only way we are going to succeed.

The issue of US withdrawal from Afghanistan is a complicated one. You have to think about the backdrop, the breakdown of the chain of command. The Joint Chiefs of Staff opposed this request from the president. It also opposed Trump's demands to accelerate the exit. But it is very good to see that the president who has been elected has prevailed. In addition, and to better understand this issue, Biden approved a defence budget of more than seven hundred billion dollars, which is dedicated to high technology. When one wonders whether the US is retreating from the stage, one has to look at what it is doing in terms of technology and so on. So it doesn't look like they are withdrawing. They are going to use drones, as they are doing in Iraq fighting ISIS. They just signed an agreement with Australia on submarines. That is an aggressive weapon. They're showing that that's the position of the allies in that part of the world.

The Biden Administration is trying to fix a system that is broken, but it is inside the system. It is moving forward on one front and backward on another. In the US there are several states where hospitals are on the verge of collapse and nothing can be done about it at the federal level. The Democrats' victory was very narrow, so things are going to be complicated. We're talking about, for example, guaranteeing minimum spending on railways, or basic care for newborns, or electricity going underground instead of on poles. Democrats face a lot of opposition at home. The Senate is going to try to put a ceiling on the debt. The courts are not going to help either. So it's a battle. It's centuries of complications and it's a delicate thing. The key element is power in the hands of a white minority, which is something the Republicans defend.

We did not emerge stronger from the pandemic. The wound has been deep. There has been a creative response. Politicians have not totally failed. A constitutional crisis in the United States has been overcome. But there are also the victims. Vaccines are a fantastic thing. The Chinese spent their time and money on research and made their results available to the rest of the world. We should be celebrating that, but instead we are stingy and have failed to secure those vaccines for many parts of the world's population. So we came out better off than you might think, but not stronger.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.