How worried are you about Coronavirus?
I am worried for my parents, my relatives, my friends and the health of citizens. The priority now needs to be reduce the speed of the spread of the virus to preserve lives and prevent hospitals from collapsing. The situation in Italy is dramatic with health services overwhelmed. The problem is that we only have medieval methods such as quarantine, school closings etc. to do so.
What are the economic consequences of the pandemic?
Reducing social interactions has profound economic consequences. Parents looking after their children can't work. Workers can't produce if they are quarantined. Restaurants can't sell meals if guests don't come. This affects both the demand and the supply side of our economies. It also severely interrupts the global trading system. The violent market reaction is a sign of things to come.
What should policy makers do?
We need to fund medical services and support those most affected such as self-employed and specific companies. But targeted measures are not enough. This shock translates into macroeconomic effects operating through major second round and confidence effects. It requires a coordinated response of fiscal policy makers across Europe. We propose a cut in social security contributions or payroll taxes to alleviate financial and cash flow constraints of companies and incentivize the preservation of employment. The ECB's measures decided today are helpful. And I am sure that Christine Lagarde did not mean to say that it is not the ECB's job to close spreads. I am convinced the ECB is there to do whatever it takes and support all the countries of the euro area at this point.
Guntram Wolff is the Director of Bruegel.
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