{"id":2057,"date":"2020-03-26T14:15:32","date_gmt":"2020-03-26T12:15:32","guid":{"rendered":"http:\/\/www.liberalglobe.com\/?p=2057"},"modified":"2020-03-26T14:15:35","modified_gmt":"2020-03-26T12:15:35","slug":"governments-and-central-bank-react-while-the-world-economy-enters-a-recession-coma","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=2057","title":{"rendered":"Governments and Central Bank React while the World Economy enters a Recession coma"},"content":{"rendered":"\n

The EU last week announced that the enforced rules on budgetary discipline are being suspended in order the member-countries of Eurozone to deal drastically with the upcoming recession due to the Covid-19 (Coronavirus) pandemic. US Senate House on March 25 approved the $2trillion fiscal package proposal of US President Donald Trump to support the US economy against the recession which will be caused from the coronavirus. <\/p>\n\n\n\n

Both the governments of the developed countries and their respective central banks are constantly rushing to upgrade with new measures the support of their economies and, more generally, the global economy which gradually all together and each separately economies enter a recession coma. <\/p>\n\n\n\n

The upcoming economic crisis caused by the Coronavirus pandemic is the most difficult of all forms of recession because it is hitting both demand and supply side at the same time.<\/p>\n\n\n\n

by Trust Economics https:\/\/trusteconomics.eu<\/em><\/strong><\/p>\n\n\n\n

\u00a9The law of intellectual property is prohibited in any way unlawful use\/appropriation of this article, with heavy civil and criminal penalties for the infringer.<\/em><\/p>\n\n\n\n

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How to cope with the prospect of huge coronavirus recession<\/strong>
Photo by the website www.prospect.org <\/figcaption><\/figure><\/div>\n\n\n\n

EU and<\/strong> European Central Bank (ECB)<\/strong><\/strong><\/p>\n\n\n\n

The ECB and its monetary policy to date have been exhausted in creating\nartificial growth in the euro area and since before the crisis it kept its base\nborrowing rate at near zero levels it does not allow room for maneuvers for to\nsupport the effort to contain the fall in Eurozone GDP.<\/p>\n\n\n\n

On Thursday, March 12th the ECB announced a \u20ac120bn capital relief for\nEuropean systemic banks to cover their losses from a future increase in the\nproportion of non-performing loans by households and businesses respectively.<\/p>\n\n\n\n

On Thursday, 19 March the ECB, and after much pressure from severely affected member countries such as Italy, (please read the analysis titled \u00abECB Backstabbing in Tested Italy<\/a>\u00bb), announced the implementation of a new \u20ac720bn quantitative easing program.<\/p>\n\n\n\n

At the same time, the Commission, through its President Ursula von der\nLeyen, announced on Friday 20 March the suspension of the EU’s fiscal\ndiscipline rules. An unprecedented measure that will allow EU member countries\nto use the funds needed to deal with the consequences of the induced recession.<\/p>\n\n\n\n

In fact, with this decision, the Commission suspends the Stability and\nGrowth Pact which binds all euro area member countries. The aim is to increase\npublic spending and to have tax-exemptions at the level of 1% of the Eurozone\nGDP, in order to strengthen the economies affected by the Covid-19 crisis.<\/p>\n\n\n\n

However, restrictions referred to in the Maastricht Treaty such as that\nmember countries are obliged to maintain an annual budget deficit of < 3% of\ntheir GDP remain.<\/p>\n\n\n\n

Italy<\/em> <\/em><\/em><\/p>\n\n\n\n

The Italian government announced measures of \u20ac25bn to help borrowers and at\nthe same time published measures suspending payments of certain mortgage and\nbank loan deadlines.<\/p>\n\n\n\n

France<\/em><\/em><\/p>\n\n\n\n

The French government has announced measures of \u20ac45bn. These measures aim\nto reduce or cancel debts only for the month of March. Small businesses in\ndifficulty will benefit from the suspension of payment of their bill for social\ngoods such as water, gas, electricity and their headquarters rents.<\/p>\n\n\n\n

At the same time, the French state announced the granting of \u20ac300bn in\nguarantees on loans granted by banks to companies affected by the Coronavirus\ncrisis while also acquiring shares of the most important companies.<\/p>\n\n\n\n

Germany<\/em><\/em><\/p>\n\n\n\n

The German government has announced the largest private and public sector\nfinancial support plan, with guarantees and credits of \u20ac550bn.<\/p>\n\n\n\n

Spain<\/em><\/em><\/p>\n\n\n\n

Spain’s government has announced it will guarantee \u20ac100bn of business\nloans.<\/p>\n\n\n\n

USA and Federal Reserve System (FED)<\/strong><\/p>\n\n\n\n

President Donald Trump’s proposal and the Republican party are pushing for\na senate debate on a package of support for the U.S. economy approaching\n$2trillion. Democrats have reservations about this plan. If the Democrats agree\nthen this draft proposal will be pushed forward for a resolution in the House\nof Representatives. H<\/p>\n\n\n\n

At the same time, a $100bn welfare program has already been approved by\nCongress. Uncertainty among\nworkers and small-medium-sized enterprises is high as entire sectors of the\neconomy such as catering, tourism and air suspension have already been closed.<\/p>\n\n\n\n

For its part, the FED has offered to support loans relating to real estate\nand consumer goods such as cars and to provide loans mainly to affected\nlockdown companies. Essentially, the FED is implementing a short-term debt\nfinancing strategy to support households and businesses for the first few\nmonths of lockdown on the economy.<\/p>\n\n\n\n

On Sunday, March 15, the FED moved to cut its key basic borrowing rate to zero, while clarifying that it would maintain these interest rates for the duration of the pandemic crisis.<\/p>\n\n\n\n

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On the Brink of Recession<\/strong>
Photo by the site www.forbes.com
<\/figcaption><\/figure><\/div>\n\n\n\n

UK and Bank of England (<\/strong>\u0392\u03bf\u0395<\/strong>) <\/strong><\/p>\n\n\n\n

Britain’s government has announced the granting of state guarantees for\nbusiness loans of up to \u00a3330bn and financial assistance of \u00a320bn.<\/p>\n\n\n\n

At the same time, the British Government promised to grant subsidies to\ncover up to 80% of the salaries of workers who have been forced temporary leave\nafter the closure of businesses operating in the catering and food industry.<\/p>\n\n\n\n

For its part, the BoE reduced the base borrowing rate to 0,1 % from 0,25%\n(from 0,75% to 0,25%, a decrease it had made last week).<\/p>\n\n\n\n

Canada and Bank of Canada (BoC)<\/strong><\/p>\n\n\n\n

The Federal Government of Canada announced a fiscal support package\ninitially $10bn CAD  and then announced a\nsecond largest support package that includes a $27bn CAD to directly support\nthe income of workers in precarious situations and which are the companies\npresent a problem while $55bn CAD will be granted in the form of a suspended\ntax debts.<\/p>\n\n\n\n

China and People\u2019s Bank of China (PBOC)<\/strong><\/p>\n\n\n\n

People\u2019s Bank of China (PBOC) in turn announced extensions and business loan\nrenewals at the end of February. At the same time, it released 550bn Yuan\n(\u20ac70,6bn) from its foreign exchange reserves to support the Chinese\neconomy.  <\/p>\n\n\n\n

The Hong Kong government has decided to give money directly to its\ncitizens.<\/p>\n\n\n\n

Japan and Bank of Japan (BoJ) <\/strong><\/p>\n\n\n\n

The BoJ used ETF buying shares and syndicated bonds through this fund;\nthese purchases reached the levels of \u00a512trillion ($113bn).<\/p>\n\n\n\n

South Korea and Bank of Korea (BoK)<\/strong><\/p>\n\n\n\n

The Central Bank of Korea in turn announced a reduction in its base\nborrowing rate to 0,75%.<\/p>\n\n\n\n

Australia and Reserve Bank of Australia (RBA)<\/strong><\/p>\n\n\n\n

The Reserve Bank of Australia cut its key lending rate to 0,25 per cent and\nannounced the debt redemption of small and medium-sized enterprises through\ncommercial banks operating in Australia.<\/p>\n\n\n\n

The expected results<\/strong><\/strong><\/p>\n\n\n\n

All these economic policies and generous fiscal liquidity packages cannot\nmake a substantial economic difference because they are only looking to generously strengthen the\ndemand side, while both demand and supply in the economies are being hit hard\nat the same time.<\/p>\n\n\n\n

Therefore, the economic crisis caused by the Covid-19 (Coronavirus) pandemic is much worse than the global financial crisis of 2008. On how to avoid conflict between the world’s developed economies and the upcoming economic Armageddon, please read the analysis entitled “How the US and the World’s Countries will avoid the Economic Armageddon caused by the the Lockdown of Coronavirus Pandemic<\/a>“<\/p>\n\n\n\n

Trust Economics<\/em><\/strong>is a specialized independent economic research, analysis & consultancy business. Our team provides ingenious analysis in the macroeconomics & microeconomics field equally, in the field of financial markets, regional and sectoral analysis equally, forecasts, consultancy, specialized studies-research\/projects.<\/p>\n","protected":false},"excerpt":{"rendered":"

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