Economic impact from covid-19: What should be done to limit damage?
In this article released by the Financial Times, Mario Draghi reflects about the measures to be taken to limit the economic impacts of the coronavirus crisis.
The recession will happen but the depth and length of it will depend on the effectiveness of the actions taken by the governments: “The challenge we face is how to act with sufficient strength and speed to prevent the recession from morphing into a prolonged depression, made deeper by a plethora of defaults leaving irreversible damage”
Mario Draghi considers that the answer must involve a significant increase in public debt. “The key question is not whether but how the state should put its balance sheet to good use. Public debt levels will have increased but the alternative would be more damaging. Speed is absolutely essential for effectiveness, the cost of hesitation may be irreversible.”
He remarks the relevance of the financial systems of the countries as the mechanism to transmit to the real economy all the set of measures announced by the governments. In particular he makes specific references to the banks which should count with state guarantees and all the flexibility necessary by authorities, regulators and supervisors to deal with this aim: “Banks must rapidly lend funds at zero cost to companies prepared to save jobs. Since in this way they are becoming a vehicle for public policy, the capital they need to perform this task must be provided by the government in the form of state guarantees on all additional overdrafts or loans. Neither regulation nor collateral rules should stand in the way of creating all the space needed in bank balance sheets for this purpose”
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According to José Carlos Díez, Professor of Economics at the University of Alcalá, Spanish households have access to some of the cheapest mortgages in Europe, with interest rates below both Euribor and long-term government bond yields.
According to the IEE, Spain's business tax burden exceeds the European Union average, both as a share of total tax revenues and as a percentage of GDP.
AEB, CECA and UNACC propose measures to increase banks' lending capacity by more than €2 trillion in the euro area, including over €250 billion in Spain, providing additional resources to strengthen banks and finance new investment.
According to Boston Consulting Group, regulation brought in after the GFC strengthened the financial sector’s resilience but institutionalized bias towards removing all risk over economic growth.
According to Ramón Casilda, the EU–Mercosur agreement will generate annual tariff savings of around €4 billion, which is significantly higher than the savings expected under the agreements with Canada and Japan.
Economist José Carlos Díez notes that Spain’s banking sector has an excess of deposits and sufficient liquidity to meet the credit demand of companies and households, and does so at the lowest interest rates in Europe, according to the ECB.
According to CEPS, regulatory and supervisory complexity acts as a structural constraint on integration, investment and market depth, with costs that weigh most heavily on smaller institutions, new entrants and cross-border business models.
According to the ECB, an efficient, secure and integrated payment system would strengthen the international role of the euro and deliver benefits such as lower financing costs, reduced exposure to exchange rate fluctuations and greater protection against sanctions.
According to the IEA one key debate in the EU on financial regulation simplification is whether to explicitly include competitiveness, efficiency or contribution to growth as objectives of the regulatory agencies, following the UK example.
According to IE University’s Center for the Governance of Change, deeper and more integrated financial markets would strengthen the euro’s global role. This requires, among other elements, resilient and interoperable payment systems and completing the banking union.
Partnerships between banks and private credit: The winners will be those that combine bank underwriting discipline, distribution, and customer access with private capital’s appetite for long-dated, illiquid risk, according to Oliver Wyman.
Lucrezia Reichlin (CEPR): A CBDC is not a prerequisite for monetary sovereignty. Confusing money with payments can risk misdiagnosing the problem and misaligning economic policy efforts.