This is the last in a three-part series studying the unintended consequences of the novel coronavirus on island and worldwide from an economic standpoint

The coronavirus economic blow is such that there is no orthodox way to bear the burden of the relief programmes. Who will pay for this frenzy of billions? Europe has it particularly hard, because the north and the south do not agree on the approach. Will the monetary union survive the coronavirus?

The amounts that governments are readying for flattening the recession curve are staggering. Where is the money going to come from?

Aside from two or three very large and solid economies, governments have no way to finance these programmes through the orthodox means of issuing debt today and repaying it with future taxes. Nor are the capital markets willing to lend to soon-to-be insolvent governments.

The only way to finance the programmes is to use the privilege reserved to the state to create new money and distribute it without asking for anything in return. The most common and elegant way to create money is for the central bank to lend money to the government through the purchase of debt securities at very low interest rates. These titles, or others that will replace them, will remain on the central bank’s books in saecula saeculorum or until inflation dilutes them.

Lately, the figure of “helicopter money” and the so-called Modern Monetary Theory — which is not as modern as its name indicates — has become fashionable. It has been mainly claimed in recent years by left-wing politicians to justify the expansion of public spending.

Its central postulate is that governments can increase spending and run fiscal deficits by resorting to central bank financing, which can create money freely, as if the government were throwing money from a helicopter. The only limitation is the inflation that “inorganic” money can generate.

Interestingly, orthodox economists — with the exception of the Dutch and German ordo-liberals — are progressively accepting the idea of helicopter money in critical moments such as the present, because they see no risk of inflation, rather a risk of deflation owing to the coronavirus crisis.

Monetary “orthodoxy” is not going to be the sole victim of the coronavirus crisis. It means that governments can face the crisis without restriction in the availability of resources, which is very good news for citizens.

If the world has already accepted that relief programmes are going to be free for governments and citizens at the end in the developed world, can the helicopter also fly over poor countries?

It has become fashionable to say that the coronavirus has made the poor and the rich equal. This is a great falsehood in the case of the poor in poor countries. First, because the number of infections and deaths will be much higher there. Their health systems are not ready to take care of people’s health even in normal times, much less in these times of pandemic.

Furthermore, social-distancing measures will not work in the poorer strata. For them, staying at home is not being able to eat, because only on the street do they find their daily sustenance. Between starving or catching the virus, the choice is clear.

Governments do not have the financial or administrative capacity to implement the social-protection network that allows poor people to stay at home, not to mention that they live in crowded homes and slums.

And second, because the governments of poor countries will not have sufficient financial means for sustaining relief programmes, let alone handouts. On the one hand, the economic situation was already worsening because of the world crisis, which has had an impact on reduced exports, weaker currencies and capital flight.

Even before the coronavirus crisis, poor countries´ debt capacity had been reduced to nothing. And if they decide to fly their own helicopter, what will rain down is increasingly devalued local currency that does not buy medical supplies or imported food but does generate high inflation. This also applies for not so poor but tiny countries.

We are facing the perfect storm of an unprecedented humanitarian crisis. I know it has not been easy for the battered First World, but the coronavirus should not lead the developed world to withdraw behind its borders.

Sooner or later, the impact of the overwhelming health crisis in poor countries in Africa, Latin America, the Middle East and Asia will end up feeding the epidemic back into rich countries. The G7, G20 and multilateral agencies can do a lot to mobilise resources towards poor countries, in their own interest as well as for international solidarity.

Europe needs to fly its own money helicopter as other countries have done. The problem is that the European helicopter, the ECB, is the collective property of the members of the European Monetary Union. No individual country can force the ECB to buy the debt securities with which it is financing its coronavirus emergency programme.

This is at the core of the dispute between northern and southern Europe. Theoretically, Germany, the Netherlands or Austria can cope with the emergency through orthodox means of issuing debt and collecting taxes. Southern European countries, including France, do not have the fiscal leeway to do so.

The 750 billion euros promised by the ECB is just to provide liquidity to financial markets, not to keep millions of companies and workers on life support. The resources theoretically available through the European Stability Mechanism are totally insufficient and subject to a conditionality that is inadequate for facing a crisis such as the coronavirus.

Only some kind of common bonds — coronabonds — could work, with their service and repayment borne by the European budget. Another approach that could also work would be a sufficiently significant expansion of the ECB’s commitment to buy debt securities of the member countries.

In the end, both mechanisms imply creating a common European pot to deal with the crisis, a solidarity that a part of Europe is in denial about accepting.

How can the European Union and its EMU survive such a discrepancy? This conflict nearly cost the euro its life in 2011-12, until the ECB President, Italian Mario Draghi, said he would do what was necessary to save the monetary union.

Will the ECB again, this time under the command of France’s Christine Lagarde, have to save the EMU in extremis by buying the bonds of France, Italy or Spain?

This will probably happen, forced by circumstances, but I do not predict a good end to a monetary union with such profound discrepancies and such divergent fiscal policies.

In principle, no country can be forced to bear the costs of others. The thing is that we are not talking about just any countries, but members of a monetary union. Theory and experience tell us that, without a minimum of solidarity, a common currency is not viable.

The truth is that these divergences have paralysed Europe. Suffice it to say how the coronavirus emergency has been addressed: it has been a blatant withdrawal to national decision-making, as if 70 years of European integration had not existed. Even internal borders have been raised again in clear contravention of the Schengen Agreement.

Each country is managing the emergency as it sees fit; a return to autarky, the main responsibility for which lies in Brussels with its inability to articulate European responses to the crisis.

Once again, Europe is risking its future. In other crises, it has managed to get out of the jam relatively unscathed. Let’s hope it happens again.

• Miguel I. Purroy, an economist, political scientist and director of Hotelco Bermuda Holding Ltd, is the author of Germany and the Euro Crisis. A Failed Hegemony