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Macroeconomic & Geopolitical

Governments Stepped up to the Plate, Grand Slam or a Bunt?

25 March 2020 - 4 min read

To limit the economic damage, the public sector is taking extraordinary action in many countries. This note reviews the measures announced in Europe and the United States.

In Europe, governments understand the importance of avoiding the fall in demand that is associated with a near-complete lockdown, as it can have a permanent effect on the economy once the epidemic recedes. A number of measures have been deployed:

  • Cash support to households, most often through wage subsidies (including in Germany, Italy, Spain, U.K.), one-off grants (Italy, Poland) and the deferral of mortgage and other payments (France, Italy, Spain).
  • The main instrument for state support to companies is through the provision of public guarantees to companies’ debt in all countries, together with the deferral of tax and social security payments (France, Italy, Spain, U.K.) and direct loans (Germany).
  • Many governments have hinted at the possibility of nationalizations (Italy, France) and recapitalizations (Germany) or a “national shield” to protect firms from foreign takeovers (Spain).
  • Support and investment within the health sector and the rest of the economy (most countries).

In the United States, the Fed had its own “whatever it takes” moment on March 23, taking the unprecedented step of announcing an open-ended QE program that broadens monetary support well beyond Treasury and MBS markets. In an effort to shore up liquidity conditions across credit markets and restore stability to funding and financial markets, the Fed announced several new measures. The facilities are aimed at helping corporates, households and municipalities.

Fiscal stimulus needs to be big, all-encompassing, and happen quickly if the government wants a recovery that resembles a ‘V.’ While the U.S. government has passed two relief bills, these were aimed at preventing the spread of the virus, providing medical and food aid, and strengthening unemployment insurance, rather than providing stimulus to keep the economy afloat. A $1–2 trillion bill is being discussed among lawmakers (Table 2 summarizes these measures), but is being delayed largely due to disagreements surrounding industry-specific relief.

A number of other measures could be added to the final bill that would help alleviate the economic impact of the virus:

  • More money for hospitals
  • Money for state and local governments 
  • Employee retention tax credit
  • Greater oversight for the Corporate Loan Facility
  • Measures to protect individuals from foreclosure, evictions, and forbearance
  • Relief for student loans
  • Greater SNAP funding (some funding was included in the second relief bill passed)

A hefty fiscal stimulus bill will be delivered soon and help aid the U.S. economy from the impact of the pandemic, but it will take longer for the economy to recover if it doesn’t give enough relief to businesses and the unemployed.


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