The massive bailout of indebted sectors that already had overcapacity and were in process of obsolescence may also drive the largest wave of malinvestment in decades. If the previous recoveries came with poor wage and capital expenditure growth and high debt, the next one will likely be even...
The eurozone needs to understand that if it decides to increase taxes to address the rising debt due to the COVID-19 response, its ability to recover will be irreparably damaged.
The oil industry became one of the main areas of malinvestment in the years of massive liquidity and low yields. This perpetuated excess capacity and kept inefficient companies unnecessarily alive.
Debt-ridden countries such as Italy will come to rely more and more on Germans and other northern Europeans to finance their debt. This will require a more unified Europe. Or the whole thing may collapse.
As the debt bombs in Italy and Spain and France get worse, it increasingly looks like the eurozone will have to bail out a huge portion of the European economy. Either that, or break up the EU, provoking a new crisis.
When governments and central banks announce massive stimulus packages at the very beginning of a crisis, they bet on a speedy recovery and a return to normal as if nothing had happened. This is far from the case.
The key to recovering jobs quickly and efficiently is the combination of a flexible labor market, an attractive investment framework, and solid policies to preserve the business fabric of the country.
