Angus Armstrong's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Director of Macroeconomic Research
Visiting Professor, Imperial College London

Voting history

The Eurozone COVID-19 Crisis: EU Policy Options

Question 2: What is the best mechanism to pay for economic support provided by and to EU member states to combat the COVID-19 crisis?

Answer:
Joint borrowing by member states (e.g. Coronabonds)
Confidence level:
Confident
Comment:
This is the logical answer for a monetary union to succeed over the longer term.

Question 1: What is the total size of funding that you would advocate at the EU level in support of its members to weather the COVID-19 crisis this year?

 

 

Answer:
10-20% of GDP
Confidence level:
Not confident
Comment:
This would constitute a huge one year budgeted package. However, I have low confidence in my answer because it depends on the form of the package. If this were a full transfer from North to South, this would signal a federal Europe. If instead it is a loan or has implausible conditionality then this may not be enough.

Covid-19: Economic Policy Response

Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?

Answer:
>140% of GDP
Confidence level:
Very confident
Comment:
Everything is contingent on the disease, but protection of citizens is the first job of the state. Failure to do so would lead to anarchy and so I do not think an upper bound can be guessed without a clear statement of the upper bound on the disease which we are yet to know (e.g., some epidemiologists expect secondary waves of infection).

Question 2: Which of the following would have the second greatest impact in mitigating the economic effects of the coronavirus economic crisis in the UK?

Answer:
Government credit support for businesses
Confidence level:
Confident
Comment:
Businesses face a sudden-stop in demand and so some support is necessary. While credit support is fastest and simplest, the design is crucial. For medium and large size companies they can repay or if there is a problem after say 6 months the credit is converted into equity. This will avoid a credit overhang and making the shadow of the crisis longer than necessary. The equity could be held by the British Business Bank, overnight transforming it into a decent size institution with a different mandate creating more diversity in the financial ecosystem. It may even herald the start of state equity stakes and reduce the dependence of debt finance.

Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?

Answer:
None of the above, other, or no opinion
Confidence level:
Very confident
Comment:
Govt's plan to underwrite 80% of wages is exactly the right move both economically and morally, which should not be ignored. It greatly lessons incentives on firms to fire staff when demand has come to a sudden stop and for households to engage in precuationary saving or try to return to work earlier than safe to do so. The private sector will not be spending so no problem with govt deficit. The tricky bits will be (a) delivering the payments, (b) not discouraging job moves, and (c) when to unwind scheme. But the right move.

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