Grandstand. Across the world, public authorities are mobilizing to fight the coronavirus. The Covid-19 is a new kind of shock that we cannot deal with using old recipes. We need to design policies for those who are most at risk from this crisis.
Today, these are businesses and families facing a sharp drop in income and who are increasingly worried about the future. The policies of the European Central Bank (ECB) are precisely defined to support them. As part of our mandate, we have calibrated our measures so that liquidity reaches the most vulnerable citizens and sectors.
To understand how our measures work, we need to determine what makes this crisis special. Its roots are different from those of a financial crisis or a classic recession. The sharp drop in economic activity is a consequence of the decision to ask everyone to stay at home. Therefore, it is imperative to prevent viable businesses from closing and workers from losing their jobs due to a temporary crisis for which neither is responsible.
Employees have never been more threatened since the 1930s. In 2009, for example, up to 665,000 new weekly jobless claims were registered in the United States. In the past two weeks, this country has registered 3.3 million, then 6.6 million new registrations. While unemployment usually takes longer to rise and is less volatile in Europe, the first disturbing signs appear. The Purchasing Managers for Employment index fell more sharply than ever in March.
In order to avoid lasting damage, the economy must be “on hold” and kept in a situation as close as possible to that prevailing before the pandemic. Several tools can be used for this purpose. One of them is to put in place public schemes that support short-term jobs. Another solution is to mobilize the banking system to provide businesses with the cash they need to continue paying their employees and their bills. As the euro area is a bank-based economy, facilitating credit flows helps to quickly bring liquidity across the economy.