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

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.

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

Answer:
Broad cash transfers and/or tax cuts
Confidence level:
Extremely confident
Comment:
The crisis is severe and is becoming widespread. Time is of the essence. The policy response has to be swift. Targeted responses that involve conditionality and a lot of paperwork cannot be definition be quick. A broad based tax cut can benefit the employed but will not benefit the unemployed. A cash transfer would benefit everyone. A three month holiday on mortgage payments and credit card debts backed by regulatory forbearance will benefit the indebted and can protect those who are temporarily laid off. Another way to support households is to allow withdrawals from pension funds without tax penalties while the crisis lasts. This will have no immediate fiscal impact but can allow households to smooth consumption.

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:
Extremely confident
Comment:
Many businesses that were solvent before the crisis need to be able to access liquidity quickly. This can be achieved through the banking system.

Pages