IAN Week’s Review: The Policy response to the Corona Virus

As COVID19 infection rates soared across the world, several more states and countries introduced additional restrictions to activity and lockdowns. Perhaps the more significant was the u-turn by the UK Government on its previous policy of controlled infection, once they realised that the potential fatalities resulting from that policy would be in the hundred thousands.

Due to the unprecedented economic risks which results from lockdowns all over the world, policy-makers announced major packages to support the economy.

In Europe, the ECB announced a €750 billion Pandemic Emergency Purchase Programme (PEPP) of corporate and sovereign asssets, which represents over 6% of 2019 euro area GDP.  the EU Commission proposed to activate the general escape clause. Once endorsed by the Council (the meeting will take place of the 24th, while Economics and Finance Ministers will meet on the 23rd), it will allow Member States to undertake measures to depart from the budgetary requirements that would normally apply under the European fiscal framework. Among many other measures the Comission also adopted a temporary framework for State-Aid to allow countries to support firms. European countries announced a bunch of measures to support their firms and households.

But perhaps the more significant is Germany’s decision to abandon years of fiscal profiglacy. According to the Financial Times, Germany’s Ministers will meet on Monday to aprove new borrowing worth 356bn euro in 2020, close to 10% of GDP. Chancellor Angela Merkel has also reportedly agreed to consider issing a new common European Bond to ease strain on funding for more indebted countries.

In the UK the Bank of England announced a asset-purchasing programme of 200bn and a rate cut to 0.01%, the lowest in its 3 century-old history. The UK Government announced it would pay 80% of wages in the first three months for furloughed employees (on leave of absence), to limit redundancies.

In the US, the Congress is debating on the small print of a 1tr USD package to help support the economy. The Federal Reserve, lowered the Fed Funds rate range by 1% to close to 0% and intervened in diferente markets, including purchasing close to 70bn USD of mortgage-backed debt.

Selected Readings from the international press:

Harry Stevens on the math of the pandemic

The Economist – More Europe or Less?

Jacques Toubon, Adeline Hazan et Jean-Marie Burguburu – Sauvegardons les droits fondamentaux pendant la crise sanitaire