Andor László – intézetünk tanácsadó testületének elnöke – írása eredetileg a progressivepost.eu-n jelent meg 2020. április 7-én.
Since the outbreak of COVID-19, it has been widely publicised that the medical significance of hand washing was discovered by a 19th century Hungarian doctor, Ignác (Ignaz) Semmelweis. It may as well be striking how recent this discovery is, but also that the doctor introducing it was facing ferocious resistance from the medical establishment of the time. There is, however, another important aspect of the Semmelweis story that should help understand recent and current developments in Europe. That is the role of trial and error in discovery and human behaviour.
The starting point for Semmelweis was that he observed a major difference between death rates in two different hospital wards. He understood that a lot of young mothers were dying unnecessarily, but he had to find out the reason. He started to compare everything in the two wards. First, he observed that the positioning of the women on their beds was different in the two cases: in one on their backs, and in the other one more on their sides. He started to position all women on their sides in order to lower the death rates, but it did not work. Then he observed that the service to the fatally ill is delivered differently by the priests in the two wards. So, he ensured that the service in the high death ward was following the same choreography as in the low death ward, i.e. without ringing a bell. Still, death rates refused to come down.
Finally, Semmelweis noticed that in the high death ward the doctors arrive to work in the morning after performing autopsy, and this way they themselves transmit bacteria from dead people to young mothers, which then kills many of them. Midwives working in the other ward had no contact with the dead. He started to order doctors vehemently to wash their hands in between autopsy and childbirth, and the death rates started to fall. Nevertheless, his more powerful colleagues were not grateful for the life-saving invention, and it was Semmelweis who ended up in the madhouse.
Trial and error was also observed in the great financial crisis that devastated Europe a decade ago. As soon as the first signs of a public debt crisis emerged inside the Euro area, the parade of bad ideas began. First, in May 2010, Greece’s debt to private creditors was refinanced in full by official lenders, but in order to teach Greece a lesson, this took place at punitive interest rates and in exchange of an austerity package leading to the GDP fall. Private investors left the scene unharmed, while cheap loans were replaced by expensive ones, and the Greek economy was bound to shrink. The only possible outcome of that was an increasing debt/GDP ratio, in other words, deteriorating debt sustainability. Because the equation could obviously not work, the cynics of the machinery installed a 50 billion-euro privatisation revenue into the programme in order to pretend that fiscal consolidation was possible. Instead, suspicion started to grow about the entire eurozone periphery, which increasingly was mentioned under the acronym “PIGS” at that time.
Angela Merkel and Nicolas Sarkozy, the most powerful leaders of the time, realised that they may have made a mistake by creating a precedent about private investors profiting and taxpayers bringing all the credit risk on themselves. So, in October 2010, at Deauville, they announced that the private sector would also be expected to face losses. This move created such an uncertainty that credit spreads jumped across the board, and very shortly two more countries, Ireland and Portugal followed Greece into quasi-insolvency, preparing the ground for a full-blown eurozone crisis. In addition, Jean-Claude Trichet, then President of the European Central Bank (ECB), decided to raise the interest rate, which in such circumstances was not a good idea. Instead of restoring confidence, by this pro-cyclical measure he delivered the death knell to the fragile euro area economy, and to the more peripheral countries in particular.
“the good times, when the sun was shining, were not used to repair the roof”
The debacles continued until it was left to the new leader of the ECB, Mario Draghi, to reverse the tide by announcing a host of unconventional measures („whatever it takes”) in July 2012. For a moment, it seemed that the EU would draw the right lessons from the drama, when the report of four Presidents proposed many new instruments to make the single currency sustainable. But then the good times, when the sun was shining, were not used to repair the roof, the eurogroup wasted time on discussing ridiculous concepts like the BICC (Budgetary Instrument for Convergence and Competitiveness), and the new crisis caught the EU Economic and Monetary Union almost as naked as the previous one.
The current COVID-19 crisis is another case when trial and error has been playing a greater than necessary role, and it probably applies to both the medical and the economic aspects of crisis response. Perhaps the most well-known example of a failed trial is the British strategy of herd immunity, which became unpalatable as soon as it was understood that it is based on the calculable death-ratio of the older generation. And the UK was not alone with this approach, it can be found in the Dutch as well as the Swedish anti-COVID-19 policies, and in every other country where the enforcement of the lock-down strategy is not too forceful.
Heard immunity is surely not the only flawed idea of this period when, in the absence of a vaccine, there have been two ingredients of a successful suppression of the virus: extensive testing of the population and a very strict lock-down (“ social distancing”). For example, some governments attributed a lot of importance to contact tracing, i.e. a process of identification of persons who may have come into contact with someone who is already known to have been infected. This approach would probably be excellent, if a country could not import the virus from multiple directions at the same time, and if football matches (as in Milan) or street demonstrations (as in Madrid), would not have been the proven sources of exponential growth of infection.
“the closure of national borders may be less obvious for stopping the spread of the virus, while it becomes very effective for disrupting the supply of goods and services and thus deepening the recession”
Perhaps a more controversial question is the closure of national borders. While it might as well be seen as an inevitable part of the lock-down strategy, closing national borders may not be such an obvious measure when our economic systems in Europe are so much integrated. Once all EU Member States are affected by the virus one way or another, the closure of national borders may be less obvious for stopping the spread of the virus, while it becomes very effective for disrupting the supply of goods and services and thus deepening the recession. For example, the health services in Burgenland, which is the Easternmost region of Austria, are highly dependent on the mobility of Hungarian nurses, so the closure of the Hungarian—Austrian border is no more justified than closing off East-Hungary from West-Hungary along the River Danube.
What can we say about the economic crisis response today? Can we afford trial and error when the economy is in free fall? In recent weeks, we have seen a lot of hesitation, high-level mudslinging, as well as an appetite to resort to proxies. The lowest common denominator principle of EU decision making is well and alive, as are false references to subsidiarity. Since, however, the risk we are facing is unprecedented, overdosing the crisis response would be the smaller risk compared to fighting the deepening recession and rising unemployment with modest and complicated instruments. Doing our utmost against the disintegration of our economies, societies and democratic political systems involves EU-level solidarity, not only when the crisis is already here, but also in the long run. Fiscal risk sharing in a monetary union in various forms should be as obvious as hand washing against infections.