The coronavirus crisis management is now in a new phase. Global politicians have been shifting their focus to the consequences of the global economic shutdown. In a time of globalisation, no country can presume to ring-fence its economy from what happens in other nations. Malta is no exception.
The initial stages of the economic crisis management did not start at all well. Some political leaders were in denial about the gravity of this pandemic.
The US president initially tried to give the impression that the US would soon be back to business-as-usual.
The UK prime minister first used a light-touch approach to social and medical restrictions. He soon realised that this could lead to massive economic and social consequences. The ECB president made a classic institutional gaffe.
She said that it was not the ECB’s job to help virus-stricken countries struggling in the debt markets.
At last, global political leaders realise that all economies will need to be propped up if they are to survive the socio-economic bloodbath that this epidemic is causing. They are now reacting accordingly.
The UK and the US have adopted shock and awe tactics aimed at stemming the negative impact on their economies. In Malta, the initial response was too feeble. It needs to be ramped up immediately.
The well-being of today’s and future generations depends on the wisdom of our political leaders now.
The spectrum of measures being taken is unprecedented in size and spread. All Western political leaders have promised to inject massive liquidity into their economies on favourable conditions to encourage businesses to hold on to their employees. This commitment is encouraging. But will it be enough?
Some industries, such as the airlines, need more than just a boost of liquidity.
They need direct state aid to ensure that they continue to connect the world at a time when economic resurgence is the top priority. The same applies to the tourism industry that has such a significant multiplier effect on other economic activities.
Bailouts and deficits will become fashionable again. We will hear less about the risks of moral hazard and money printing. These are extraordinary times that call for strong state intervention.
From where will the money to support the economic measures come? Countries will need to borrow more at a time when the global debt mountain was already becoming a huge cause of concern even before the pandemic crisis.
The EU is considering the issue of a ‘coronavirus bond’ to support countries, like Italy, who already have a problem convincing markets that their debt levels are sustainable. An EU Marshall Plan would certainly help.
Distinguishing between businesses that are viable in the long term and those that are merely existing because of forbearance by banks to avoid their bankruptcy will be challenging.
It may make sense to provide helicopter money to families – giving individuals cash, hoping they will spend it to boost the economic activity.
Eventually more measures will be needed to boost consumer demand.
We are facing a financial crisis much bigger than the one we faced in 2008.
The promised cash injections in the global economies are massive, but many economists argue that more needs to be done given the projected consequences of the economic downturn.
Doing whatever it takes to put global economies back on track is the right thing.