Investment Institute
Punto de vista: Economista Jefe

War made the State

  • 07 Marzo 2022 (7 min de lectura)

Key Points

  • The consequences of the war in Ukraine will be unequal across social groups in Europe. Redistributive pressure will add to the fiscal drift triggered by the acceleration in the energy transition and the rise in military spending.
  • The ECB is probably ready to slow down its policy normalization, but the direction of travel remains clear. It would be wrong to count on debt monetization to make this fiscal drift painless.

Major political economy shifts often coincide with wars or preparation of wars. They do not simply affect how resources are affected to defend against external threats. They also shape priorities on civil spending to maximize internal social cohesion. Building a comprehensive welfare state as a demonstration of the West’s superiority against the Communist bloc was part and parcel of the cold war. Fighting Covid was a “near war experience” which has accelerated a pendulum shift towards interventionism again. In western societies, the awareness of deep divisions before the pandemic, reflected in the rise of populism, probably played a role. Without massive support to household income and job security, they may not have been able to withstand the degree of collective and individual constraints made necessary by the sanitary situation.

European economies and societies are going to be tested again by the Ukraine war. While polls suggest public opinion is ready to accept some economic sacrifice because of the sanctions against Russia, additional fiscal support is unavoidable. The distribution of the shock across social groups is likely to be highly unequal.  The surge in inflation will be the most intense for energy and food, two items which stand for a high share of the consumption basket at the bottom of the income ladder. This “redistributive pressure” will add to the acceleration in the energy transition and the rise in military spending in a new fiscal drift.

A major difference with the pandemic is that the ECB is not in the same situation to help governments fund a new rise in public debt. This time, inflation is the first manifestation of the crisis in the economic realm, not a lagged effect. While this week we expect Christine Lagarde to communicate a slower pace of policy normalization than could have been expected after the February meeting, we think the general direction of travel has not changed.  In uncertain times central bankers tend to react with two historical precedents in mind. One is the policy mistake of maintaining a too hawkish stance during the Great Depression of the 1930s. The other is the symmetric policy mistake of maintaining a too dovish stance during the 1970s.  They have spent the last 14 years reading Bernanke’s “Essays on the great depression”. They might be dusting their Milton Friedman now. The fiscal drift is not going to be painless.


Related Articles

Punto de vista: Economista Jefe

Zoom on the Boom

  • por Gilles Moëc
  • 12 Febrero 2024 (10 min de lectura)
Punto de vista: Economista Jefe

Postcard from Davos

  • por Gilles Moëc
  • 22 Enero 2024 (7 min de lectura)
Punto de vista: Economista Jefe

Probing the “Last Mile”

  • por Gilles Moëc
  • 15 Enero 2024 (7 min de lectura)

    Advertencia sobre riesgos

    El valor de las inversiones y las rentas derivadas de ellas pueden disminuir o aumentar y es posible que los inversores no recuperen la cantidad invertida originalmente.

    Clientes Profesionales

    El sitio web de AXA INVESTMENT MANAGERS Paris Sucursal en España está destinado exclusivamente a clientes profesionales tal y como son Definidos en la Directiva 2014/65/EU (directiva sobre Mercados de Instrumentos financieros) y en los artículos 194 y 196 de la Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión. Para una mayor información sobre la disponibilidad de los fondos AXA IM, por favor consulte con su asesor financiero o diríjase a la página web de la CNMV

    Por la presente confirmo que soy un inversor profesional en el sentido de la legislación aplicable.

    Entiendo que la información proporcionada tiene únicamente fines informativos y no constituye una solicitud ni un asesoramiento de inversión.

    Confirmo que poseo los conocimientos, experiencia y aptitudes necesarios en materia de inversión, y que comprendo los riesgos asociados a los productos de inversión, tal como se definen en las normas aplicables en mi jurisdicción.