Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

COVID-19 and UK Public Finances

Question 2: What is the best way to (eventually) reduce public deficits and debt?

Answer:
Perpetuities
Confidence level:
Extremely confident
Comment:
Monetary financing need not be inflationary in the current circumstances, so that’s another option I could have chosen if it was available! As the government can continue to borrow at favourable terms, perpetuities is a very good option. Any attempt to use fiscal policy Even in the future would backfire as it could derail the recovery as households and firms reduce spending in anticipation of future tax hikes or spending cuts. Consols or perpetuities offer the best alternative to monetary financing.

Question 1: How urgently should the UK government address the rise in public debt?

Answer:
Budgetary policy should not be used to address public deficits and debts in the foreseeable future
Confidence level:
Extremely confident
Comment:
Unless the war is over, it is premature to start even planning for debt reduction. The mere talk of taxation or cuts will create lobby groups against current levels of public spending and can derail the war effort. The economy will plunge into depression if the government becomes hesitant to spend during this unprecedented war. Even worse, if health spending is affected, we could be facing a very long war indeed.

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:
Expanded EU budget (with possible borrowing at the EU level)
Confidence level:
Very confident
Comment:
I like the Spanish governments proposal of issuing perpetual bonds to fund the recovery, as it is less problematic politically than corona bonds or direct transfers. The bonds will not increase public debt levels and will to have to be paid off. The fund can support the countries most affected by the pandemic and could also be used to fund public investments that create spillovers across national boundaries e.g. transport infrastructures that are essential in supply chains, and/or research and innovation, green technologies etc

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:
5-10% of GDP
Confidence level:
Very confident
Comment:
Fiscal support should be at least the same size as the expected contraction in GDP (7.5%). I suspect that IMF projections are already taking into account the 5% stimulus package announced. Going beyond that is therefore essential to prevent such a large drop in GDP, prevent unemployment from spiralling out of control and to protect the productive base of affected economies so that supply can respond to demand when the restrictions are lifted. It is paramount that governments strengthen the capacity of public health systems to deal with a possible second wave of the pandemic in the autumn, without reintroducing new restrictions that will further damage their economies. It is also paramount that governments do not see this as an opportunity to cut public sector wages and salaries, or carry out cuts in other public services. Such short sighted policies could push European economies deeper into recession and will make recovery in 2021 much less likely.

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:
Extremely confident
Comment:
This is no time for fiscal rules! These are extraordinary times and extraordinary measures are needed to fight this unprecedented war.

Pages