Economic policy to combat coronavirus: impact and solutions for Spain

Toni Roldán, director of EsadeEcPol: “Covid-19 is starting to have the same impact on the global economy and financial markets as the 2008 crisis”

“Covid-19 is starting to have the same impact on the global economy and financial markets as the 2008 crisis although a great deal of uncertainty still enshrouds its evolution and duration” said Toni Roldán, director of the Esade Center for Economic Policy & Political Economy (EsadeEcPol), in the Insight published recently: ‘Economic policy to combat coronavirus: impact and solutions for Spain.’

“The economic disruption is massive on both the supply side, due to the collapse of distribution and production chains, and the demand side, due to the impact of uncertainty and the means used to contain the virus. Nothing has had an impact like this on markets and particularly the stock exchange, which plummeted 14% in a single day, in recent years” explained Antonio García Pascual, a visiting scholar from the Johns Hopkins University and co-author of the Insight.

Early, decisive action

The impact on the Spanish economy will be greater than in other countries due to its economic structure: “Spain’s demographics, relatively high number of SMEs and considerable dependence on the tertiary sector make Spain more vulnerable than other countries”. According to García Pascual, co-author of the Insight, this crisis will probably “make Europe slip into recession in the first quarter of 2020 and Spain may follow suit in the second quarter. However, the duration and extent of the recession remain unknown for the time being”.

Spain must act quickly and decisively in order to flatten the curve of contagion. Contagion in Spain is evolving in the same way as in Italy but with a delay of 9 or 10 days. Data available in other countries show that early contention measures, such as those implemented in South Korea, are very effective in limiting contagion. The economic cost of early action is high but affordable. When the number of Covid-19 cases exceeds the capacity of the healthcare system, medical and socio-economic costs soar.

Safeguard jobs and mobilise fiscal resources

In this paper published by EsadeEcPol, the authors analyse the challenges of the economic policies adopted to combat Covid-19 and point out that “they should aim to safeguard jobs and prevent any solvent companies going bankrupt due to a lack of liquidity”. “Fiscal resources must be mobilised in order to provide direct support for affected workers and companies in order to prevent layoffs during the epidemic. The role of the EU will be crucial in this respect. In addition to the production sector, it is essential to prevent the crisis interfering with the finance industry: if it remains well capitalised and has sufficient liquidity, it will be able to contribute to an early recovery, otherwise it will aggravate the situation” they concluded.

The forthcoming days and weeks are crucial for the evolution of Covid-19 therefore, “the communication strategy is a key factor: it is better to inform the public about the seriousness of the situation clearly but without alarmism” said Pedro Rey, professor in the Esade department of economics, finance and accounting and co-author of the Insight. In this respect, the behavioural economy shows us that the way in which the public responds to advice from the authorities about preventive measures is just as important “if not more so” than the action taken by the authorities. “It is essential to issue clear, straightforward messages that elicit the desired response from the general public and reduce the financial and healthcare costs of the epidemic” he said.

Roldán pointed out that “in exceptional circumstances like these, we believe we all have a duty to pool our knowledge in order to improve the available information. This is even more the case for a think tank like EsadeEcPol whose mission is to enhance public policies and discussion on the basis of scientific evidence with a view to bettering our citizens’ quality of life”.

This articles was first published 13 March 2020 by ESADE.