Published on : 03/26/2020 – 20:11
As more and more countries choose to contain their populations completely to stop the spread of Covid-19, a serious recession is threatening the global economy. Governments are trying to end this crisis with support plans. What measures do they have?
Beyond the human toll, the coronavirus already has an unprecedented impact on world economic activity. Admittedly, strict confinement destroys whole swathes of activity. But without this violent shock it is virtually impossible to stop the pandemic, experts say. As more than three billion people resign themselves to staying at home, the international asset management group Schroders anticipates a 3.5% contraction in the global economy this year. But in this difficult context, not everyone is in the same boat.
Not all are equal in the face of coronavirus
Since the beginning of the crisis, the world has been moving in dispersed order. Finally, the G20 leaders who met by videoconference on March 26 agreed to act together. They promised to inject $ 5 trillion to support the global economy and counter the social, economic and financial repercussions of the pandemic.
A united front against a common threat, said the twenty most industrialized countries on the planet. As long as this program does not remain wishful thinking … The lack of coordination between states has been pointed out a lot. As the rich countries, led by the United States, unveiled one by one colossal plans to support their economy, concerns intensified for the poor countries which did not have access to the capital markets, and which do not have adequate health services. Here are a few examples of these massive support plans:
– United States :
The world’s leading economy is not left in the dark when faced with the coronavirus. No less than $ 2 trillion has been released to stabilize the country’s economy. A considerable sum intended to compensate for the virtual absence of social protection in the United States. Thus, each American whose annual income is less than 75,000 dollars (70,000 euros) must receive an exceptional check for 1,200 dollars, with an additional amount of 500 dollars per child. In addition, there are other emergency measures: extended unemployment insurance extended to the self-employed, government loans to small businesses already in distress.
This plan is “a drop” for Andrew Cuomo, the Governor of New York. Especially since the number of unemployed people is likely to increase very quickly. ” As many as 46 million people could find themselves unemployed in the short term in the United States Said James Bullard, chairman of the St. Louis Federal Reserve, one of 12 regional banks overseen by the Fed. ” These are people whose profession involves interaction with the public and this is exactly what our health authorities advise against “, he added.
A budget “bazooka” was also released by Berlin. After having raised the ceiling twice, the German government finally decided to inject 1.1 trillion euros into the country’s economy. Unheard of across the Rhine since the end of the Second World War. A gigantic sum, which represents almost a third of the country’s total wealth in a year. By the way, to be able to borrow on the markets, Berlin voted to suspend the sacrosanct budgetary orthodoxy introduced into the German Constitution in 2009, in the midst of the financial crisis.
The German plan includes a series of social measures, such as the use of short-time working which could affect 2.5 million people. A deferral of payment for private rents and support for hospitals adds to this. An Economic Stabilization Fund will be created with the help of the public bank KfW to help large groups and SMEs facing cash flow problems. Partial and provisional nationalization of certain groups cannot be ruled out either.
– France :
300 billion euros in loans will be released by banks to businesses affected by the pandemic. Brussels has validated the French plan under the new temporary framework for state aid, which eases Community rules on the matter. These 300 billion will help guarantee the maintenance of cash for companies in difficulty. These sums, which in their majority constitute guarantees or advances (tax type), will have to be reimbursed one day. And sooner or later there will be a problem. According to initial estimates from the National Statistics Institute (Insee), containment measures have resulted in a loss of economic activity of around 35% in France.
The first European country hit by the pandemic, Italy set up in early March a real Marshall plan to cross the epidemic with 25 billion euros, just over one point of gross domestic product. For the Italian economy, already in bad shape before the arrival of the coronavirus, it is an unprecedented mobilization of public money. Rome is supported in this by the European Central Bank (ECB) and by Brussels. Even if it means risking a sharp increase in the public deficit in 2020. 10 billion euros go in priority to hospitals and the health system to buy equipment and hire carers. To save businesses from bankruptcy, direct aid and social shock absorbers have been decided with specific unemployment benefits for small businesses. Added to this are parental leave allowances and babysitter tickets for childcare.
– The United Kingdom :
After choosing a strategy very different from its neighbors, British Prime Minister Boris Johnson finally opted for containment of the population. And to help British companies cope with the consequences of the pandemic London has also decided to put out its plan to support the economy. Worth 30 billion pounds (33 billion pounds), this massive plan was announced in early March. In detail, 7 billion will go to the self-employed and SMEs, which are the most threatened by the economic consequences of the epidemic and 5 billion will support the health system. Added to this is the £ 18 billion in other measures, notably towards public services or infrastructure which have already suffered from the shadow of Brexit. Then London decided to go further. And in particular by offering the State guarantee on loans to companies reaching 330 billion pounds (363 billion euros), a sum which can be increased if necessary, and aid of 20 billion pounds (22 billion euros).
On March 19, the Bank of England (BoE) took the markets by surprise by announcing a reduction in its key interest rate to 0.1%, its historic lowest. A week later, on March 26, the institution decided to keep the rate unchanged.
– The European Union and the ECB:
From the start of the crisis, member states favored national responses. The European Commission, not without difficulty, has tried to harmonize a common approach. The first to react was the ECB. To try to appease the financial markets, the European Central Bank released, on March 12, 120 billion euros intended to buy back the debt of the European countries and that of the companies of the euro zone. Then she put back a layer by adding 750 billion. This buyback program will be completed by the end of the year. Its goal: to encourage banks to maintain or revive their loans to households and businesses to avoid stopping the economy.
The European Union has validated two unprecedented measures: the relaxation of its state aid regulations and the suspension of its budgetary discipline rules. This should allow states to spend as much as necessary in the face of the economic consequences of the virus. However, the “corona bonds” will have to wait. Pooling debts would facilitate borrowing from the southern states, less virtuous in terms of public finances, but the northern countries have always refused this idea, which would lead them to pay for countries they deem lax. To be continued…
– Japan :
The Japanese government is considering a fiscal plan to support the country’s economy, the equivalent of about 10% of Japan’s gross domestic product (GDP). The plan, worth more than 56 trillion yen (463 billion euros), would include direct payments of money to Japanese households.
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