Overview publications

Does the coronavirus crisis call for solidarity within the EU, or within the euro area? Daniel Gros (EconPol Europe, CEPS) argues that being hit by an unforeseen epidemic has nothing to do with euro area membership and the present situation is a case which requires solidarity at EU level. And, he says, there's a plausible and simple way to organise a real expression of EU solidarity without engaging in any large-scale financial transactions.

This article first appeared on VoxEU.org: https://voxeu.org/article/corona-transfers-instead-coronabonds

This paper presents scenarios of the shutdown costs in terms of lost value added for Austria, France, Italy, Germany, Spain, Switzerland and UK. The shutdown phase will lead to considerable production losses and large declines in GDP this year. Lasting longer than a month, the losses within the EU quickly reach dimensions well beyond the growth slump of previous recessions or natural disasters. Shutdown costs justify almost every conceivable investment in health policy measures which allow to combine a resumption of production with further fight against the epidemic.

Testing for Covid-19 is a bottleneck that we face in front of the pandemic. Test production is currently much below what is necessary for mass testing strategies which are required in order to control the pandemic while letting people go back to work. In this paper, Christian Gollier (EconPol Europe, Toulouse School of Economics University of Toulouse- Capitole) and Olivier Gossner (CNRS – CREST, Ecole Polytechnique, London School of Economics) show how group testing can be optimized in three applications to multiply the efficiency of tests against Covid-19: Estimating virus prevalence to measure the evolution of the pandemic; bringing negative groups back to work to exit the current lockdown; and testing for individual infectious status to treat sick people. 

António Afonso (EconPol Europe, Lisbon School of Economics and Management of the Universidade de Lisboa) has estimated the real growth rate of GDP in Portugal in 2020 and predicts a budget deficit of around 3% or 4% of GDP, implying a break and not a fiscal regime switch. Of particular relevance, he says, is private consumption and investment, with households cutting spending significantly and an increase in government spending necessary to cover the lack of domestic demand.

In the current context of difficult times across Europe and in the World, there are relevant issues on which many people might agree, regardless of their political, ideological or theoretical views. António Afonso examines the options available and asks for compromise.

Wage smoothing is beneficial for firms and workers, but wage rigidities can lead to bilaterally inefficient separations. By comparing the impact of four policy measures regarding their impact on welfare, output and government expenditures, Martin Kerndler (TU Wien) and Michael Reiter (IHS Vienna, NYU Abu Dhabi, EconPol Europe) have identified a reasonable policy mix to counter the negative employment effects of wage rigidities. 
 

EconPol Europe's Ulrich Hege (Toulouse School of Economics, ECGI) and co-authors Bo Becker (Stockholm School of Economics, CEPR & ECGI) and Pierre Mella-Barral (Toulouse Business School) discuss the economic risks of COVID-19 and the increasingly plausible steep protraction, examine the mitigating support programs governments are putting into place for households and firms, and explain why planning for debt structuring should start now.

This article first appeared on VoxEU.org https://voxeu.org/article/corporate-debt-burdens-threaten-economic-recovery-after-covid-19

This EconPol policy brief, using figures from the ifo Institute, calculates potential costs of coronavirus to the German economy of up to 729 billion, with up to 1.8 million jobs cut and six million workers affected by lower hours - however it stresses that the aim of any action must be to shorten the partial shutdown of the economy without compromising the fight against the epidemic, with strategies that combine a resumption of production with further containment of the epidemic.

A recession is now inevitable, says Daniel Gros (CEPS, EconPol Europe), but it can be followed by a vigorous recovery. The memory of the financial crisis of 2008/9 is fresh enough to ensure the combined efforts of central bankers and governments can keep financial markets working and prevent mass bankruptcies. Policymakers at every level are using every lever at their disposal to avoid a repeat of the freezing of financial markets, which was so damaging ten years ago. The lesson was learned and is now being applied at a vast scale throughout Europe and the US. Containing the virus and protecting public health is where Western societies have to learn and adapt quickly.

Existing literature suggests that firm R&D support policies stimulate private R&D within a country and that in most cases, the positive impact of government support is stronger on smaller firms. Recent evidence also indicates that some of the policy instruments, such as patent box policies, are tools that multinationals use to lower their total tax bill through profit shifting. In this policy report, İrem Güçeri (EconPol Europe, Oxford University), Marko Köthenbürger (EconPol Europe, ETH Zurich) and Martin Simmler (EconPol Europe, Oxford University) find that the most prevalent support policies are effective in fostering private enterprise sector R&D and small and young firms seem to benefit the most from both public R&D and R&D tax incentives.