Sir Charles Bean's picture
Affiliation: 
London School of Economics
Credentials: 
MA Cambridge
PhD MIT

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:
As the question implies, it really makes sense to rely on multiple financing sources rather than a single mechanism.

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:
Not confident
Comment:
The size of the fund should really reflect the scale of the need and not be arbitrarily limited. My answer therefore reflects my present expected necessary scale of funding but could rise if there are repeated waves of the pandemic in the future.

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:
120% of GDP (e.g. if fiscal support were doubled)
Confidence level:
Confident
Comment:
We should not be overly concerned about incurring high public debt to deal with the crisis caused by the virus. Like a war (or the financial crisis), this is the classic shock that warrants a temporary period of (possibly much) higher borrowing. The reaaly important thing is that after the crisis has past, the debt/GDP ratio is put onto a gently declining path in order to create more fiscal headroom for when the next adverse shock comes along - as it inevitably will.

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 transfers to and bailouts of businesses
Confidence level:
Confident

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

Answer:
Government credit support for businesses
Confidence level:
Confident
Comment:
The objective of policy should be to ensure that the unavoidable sharp (but temporary) disruption to both supply and demand resulting from the necessary actions to address the health crisis do not also result in permanent damage to the future supply capacity of the economy. Essentially that means the government acting as an 'insurer of last resort' to provide a bridge across the period of disruption so that viable businesses do not go bankrupt in the meantime. If the period of disruption is relatively short, that can be achieved through measures to ensure that loans are freely available on reasonable terms. Because these are loans, rather than transfers, they minimise the cost to the exchequer. If, however, the period of disruption is relatively long, then such a strategy will be inadequate as it will leave businesses (especially SMEs and those with relatively high fixed costs) with excessive levels of debt, so transfers/subsidies really need to be part of the package too, and more so the longer the disruption persists. In addition, measures - whether loans or transfers - need to be structured in a fashion that encourages firms to continue to retain and pay their workers (possibly at a reduced rate) during the period of disruption.

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