Europe’s youth have found an unlikely hero

Europe’s youth have found an unlikely hero. Mario Draghi, former president of the European Central Bank (ECB), has used his first major speech since his departure from that role to underline the plight of Europe’s youngest generations. At a time of deep uncertainty about the future, and facing accusations of driving recent spikes in infections, teenagers and twentysomethings can use an influential ally.
From a medical standpoint, the Sars-Cov-2 virus is more dangerous for the elderly. However, when it comes to the economic impact of the pandemic, the youth are more exposed. For starters, there’s a risk of young people being deprived of their education, as many schools and universities struggle to provide high-quality services while enforcing social distancing. Second, they’re at risk of suffering most from the recession, as they often have less job protection and fewer financial assets to fall back on than their parents. Finally, as governments run large-scale deficits to stimulate economies and support families and businesses, the young will inherit a legacy of high national debt, which means steeper interest payments and a heightened risk of financial instability in the future.
So far, governments have not come up with a sensible approach for managing these risks. With a few exceptions, such as in Denmark, politicians have failed to devise credible plans to reopen schools in the fall. In the case of Britain, they’ve even added insult to injury by plunging the exam and university admission system into chaos.
In southern Europe, there are few signs of countries investing in skills training and other services to ensure workers find new opportunities when they lose their jobs. The lack of suitable active labour market policies increases the risk that some spending programs will be a waste, merely adding to national debt without spurring long-term growth or sustainable employment. Since the start of the pandemic, Draghi has pushed the idea that governments need to borrow to help the private sector shoulder the cost of the crisis. In his speech, however, he emphasized that not all borrowing is equal: There is “good” debt, which is used to improve productivity and expand opportunities, and then there is “debt” debt, which is used for unproductive purposes such as providing early retirement.
Politicians often prefer the second form of debt, since it can bring immediate returns in the form of higher public approval. But this is the least tolerable form of borrowing, since it pushes the cost onto the younger generations without giving them the benefits. “For years, a form of collective selfishness has led governments to divert attention and resources toward initiatives that generated guaranteed and immediate political returns,” Draghi said. “This is no longer acceptable today.”
This distinction is not new, but it goes to the heart of the peculiar blend of Keynesianism and classical liberalism that characterised Draghi’s tenure at the ECB.

—Bloomberg