The challenge of addressing covid-19’s economic effects in Europe

FEW PEOPLE would wish to trade places with Giuseppe Conte, Italy’s prime minister. As covid-19 spread he put the entire country into lockdown for the first time since the second world war. Now he must try to contain the economic effects. But he is finding that tackling them also depends on lenders and Europe’s institutions.

The immediate prognosis is a severe contraction. Economists at JPMorgan Chase, a bank, expect GDP to fall at an annualised rate of 7.5% in the first quarter of the year. The hope at least is that recovery is rapid. To that end, Mr Conte said on March 11th that he would set aside €25bn ($28bn, or 1.4% of GDP) in order to cushion the epidemic’s economic effects. The precise measures were yet to be agreed as The Economist went to press, but were expected to include compensation for companies that lose revenues and workers who are laid off. Ministers have also promised to help banks suspend repayments on mortgages and small-business loans for a year.

As people fall ill and quarantines are imposed, businesses and households face abrupt disruptions to their income. That means quick fixes are in high demand. Unlike public-spending measures, bank forbearance does not need legislation, and so can take immediate effect. But Italy’s lenders, which already have higher non-performing loan...

via The Economist: Finance and economics Business Feeds

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