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Jakarta Post

Coronavirus economics: Governments wage unprecedented war

  • Jitendra Joshi

    Agence France-Presse

London   /   Tue, March 24, 2020   /   09:10 am
Coronavirus economics: Governments wage unprecedented war The US Capitol is seen in Washington, DC, March 23, 2020, as the Senate continues negotiations on a relief package in response to the outbreak of COVID-19, known as the coronavirus. A trillion-dollar Senate proposal to rescue the reeling US economy crashed to defeat on March 22, 2020 after receiving zero support from Democrats, who said the Republican proposal failed to sufficiently help millions of Americans devastated by the coronavirus crisis.The bill, which proposed up to $2 trillion in funding for American families, thousands of shuttered or suffering businesses and the nation's critically under-equipped hospitals, failed by a 47-47 vote when it needed 60 to pass, despite intense negotiations between Republicans, Democrats and President Donald Trump's administration. (AFP/Saul Loeb)

Governments around the world are resorting to the unthinkable in economic policy as they battle to immunize growth from deeper coronavirus carnage.

Gargantuan debt spending, printing of money, loan guarantees, tax breaks and even direct payments to workers are all in the highly unorthodox mix.

AFP surveys the latest responses by major economies as COVID-19 has spread from China to infect the rest of the world, making a global recession all but inevitable:

Breaking taboos

Germany, the European Union's toughest fiscal hardliner, now recognizes that extraordinary times call for extraordinary measures. 

On Monday, Berlin said it would abandon its constitutional debt limits and raise 156 billion euros ($168 billion) in new borrowing in a bid to stop Europe's largest economy from going under.

A few weeks ago, Britain was anticipating a free-market future outside the EU but it is now resorting to levels of state intervention unseen since World War II.

The government rolled out a series of extra measures on Friday including direct grants to cover up to 80 percent of the wages of employees who have been temporarily laid off, as it ordered cafes, pubs and restaurants to close entirely.

France, which is already on lockdown, is vowing to let no company go under as it too embarks on a massive program of intervention to safeguard jobs.

Clearing the way, the EU has suspended limits on members' debt and deficit levels.

That is a particular relief to Italy, which has overtaken China to register the most deaths from COVID-19.

Backed by France, Italy wants the EU to breach the ultimate taboo by allowing eurozone members to pool their debts and issue so-called coronabonds. 

Germany -- which fiercely opposed such a radical step during the eurozone debt crisis -- is now not ruling it out.

Not so fast

While Europe vows to do whatever it takes, US lawmakers failed on Sunday to agree on a trillion-dollar emergency package to shore up the crumbling American economy.

The package -- likely the largest federal intervention in US history -- would cushion the blow for households and backstop ailing businesses. It would also likely send the federal deficit soaring.

But Democrats said the plan pushed by President Donald Trump's Republicans failed adequately to protect millions of workers or the under-equipped healthcare system.

A separate package from US financial overseers including the Federal Reserve would provide a stunning $4 trillion in liquidity to juice up the economy.

Measures agreed already include $100 billion directed at paid sick leave and expanded unemployment benefits, which Trump signed into law last week.

Central banks centralize

The Fed has issued a near-daily series of announcements to reassure panic-stricken markets and keep dollars flowing, in addition to slashing its main lending rate to near zero.

On Monday, the US central bank vowed to buy unlimited amounts of government debt -- akin to printing money -- and offered to lend directly to small- and medium-sized firms.

The European Central Bank, after being criticized for keeping interest rates on hold, last week announced a 750-billion-euro scheme to buy government and corporate bonds, so circulating huge amounts of cheap cash.

The Fed and ECB have joined other central banks in enhancing currency swaps to maintain a plentiful supply of dollars running through seized-up credit markets.

Missing in action

So far, global bodies such as the G7 and G20 have yet to forge a collective response to fight the pandemic and help poorer nations who lack the borrowing capacity of their richer peers.

Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD), said at the weekend that that needs to change "to avoid a protracted recession".

He called for a "sizeable, credible, internationally coordinated effort" bigger even than the 1930s New Deal and the Marshall Plan, which rebuilt Europe after World War II.

Saudi Arabia, which holds the G20 presidency, has called for a video conference summit of leaders this week.

If you want to help in the fight against COVID-19, we have compiled an up-to-date list of community initiatives designed to aid medical workers and low-income people in this article. Link: [UPDATED] Anti-COVID-19 initiatives: Helping Indonesia fight the outbreak