From time to time, Governor Giorgi Matulci shares his thoughts on global developments a the growth page. He recently made it clear that Hungary could follow the example of Dubai, which bases its economy on exploited guest workers and is led by a sheikh who excludes his daughter from the world. And now I outline the challenges of the decade of 2020 in more than 7,000 people. This can be briefly summarized as
The European Union will lose competition, weaken and disintegrate, Asia and China will strengthen, a revolution in energy and money will come, and we will do our best if we accept the inevitable and embark on change. The central bank governor is very pessimistic about the future of the European Union. Matulci sees the emergence of a bipolar world, with the United States on one side and China on the other. Between the two, there is no place, neither politically nor economically, for a strong third player, and this will challenge this community over time. While the EU will try to make up for its lag with money and hold the community of member states together, the disintegration of the EU may accelerate over time. In addition, globalization will be replaced by larger regional trade integrations, and although the European Union itself as well, the integration of giant regions may lead to the loss of the EU space.
According to Matulsi, this can also be accelerated by the fact that European countries are heavily indebted during the pandemic, and although the new monetary theory does not concern the size of public debt, changes in inflation may force central banks to raise interest rates, making it very difficult to finance Public debt. (Here, the central bank governor is probably modern monetary theory, or MMT, which states that, under certain conditions, countries that have their own currencies that are not pegged to others can accumulate much higher government debt without inflation than the mainstream economy thought. This in turn does not really apply to the eurozone, because its members do not have their own currency, since it was abandoned against the euro.)
Additionally, the EU is doomed to lag behind in major technological revolutions, according to Matulsi:
- The digital revolution of money (whatever it is, the central bank governor doesn’t really explain it) may make the European banking system redundant,
- Only a few European countries (the Baltic states and Scandinavian countries) have been able to keep pace with the digital revolution in business,
- And although the European Union is at the forefront of green energy, it could lose this advantage over China and the United States if a green energy transition begins there.
But how can this get out of hand? For example, we need to participate in the rise of Asia, including China. According to Matulsi, this is the biggest business opportunity of the 21st century, in which the whole European Union, no matter how difficult it may be, must participate. In addition, we need to accelerate digital transformation, embrace and not hinder the financial revolution, and “follow sustainability in all areas of life.” As the head of the MNB wrote: “The mandatory recipe is simple. If you look at the mirror of sustainability in all public, commercial and family developments in a country, abandoning the old and taking over the new, you win.”
I put György Matolcsy’s closing idea here as it is, because I couldn’t summarize it very well:
“Now the coronavirus pandemic signaled at the beginning of the decade that a similar shift in scale was imminent. It will be a more diverse, more vibrant decade, based on contrasts, and requiring stronger competition and stronger cooperation. The message of life, the 0-1 digital code is the message of a new mixed world. As McLuhan said: The medium, the process, the message itself.