Lockdown: Massive liquidity boost needed to ease economic shock

Today's lockdown, the culmination of measures to curb the epidemic, will further reduce whatever financial transactions were still taking place. It is doubtful whether the magnitude of the disruption to the economy has been understood, and whether the impact can be quantified.

Greece's economy has entered an unprecedented, extremely dangerous, downward spiral as the country attempts to handle the fallout from the coronavirus.

The forced shut down of thousands of businesses and freelancers by state order and the consequent collapse of jobs throughout the entire economy, create an extreme situation and war-like conditions.

Today's lockdown, the culmination of measures to curb the epidemic, will further reduce whatever financial transactions were still taking place.

It is doubtful whether the magnitude of the disruption to the economy has been understood, and whether the impact can be quantified. There are hopes that with the new measures, the virus will be quickly controlled and that the big dip in the economy in the first and, particularly, the second quarter of the year, will be followed by a stabilization of conditions in the third quarter and then a rapid recovery. We will lose 2-3 months and then return to something that looks like normal, says the optimistic scenario.

Even in this case, a scenario doubted by many experts (especially if this year's tourist season is lost), the shock to the economy caused by the lockdown will lead, with mathematical precision, thousands of businesses and professionals into a severe deadlock.

So far, the government has implemented several measures to support businesses and workers, such as freezing their financial obligations and paying an 800-euro allowance to workers from businesses that were forced to close down. The Finance Ministry is also putting together a list of businesses, based on their tax codes, that will also benefit from the measures in a list that already includes 440,000 businesses.

But with the conditions that are now being formed after the lockdown, it is pointless and against the interests of the economy, for a debate on targeted assistance to those hurt from the virus as everyone is experiencing a dramatic slowdown in business.

But how can normality be maintained in an extremely abnormal situation? What is the point in adding more businesses, day by day, to the list of beneficiaries, when there is no field which has not been affected drastically and dramatically? Without revenues, most small and medium-sized businesses, simply won't be able to meet payments, ranging from salaries and social security contributions to loan payments and operating expenses.

Market liquidity now

It would be much easier to announce the few businesses that have not been affected by the epidemic, such as supermarkets, pharmacies, and a few others, and for the government to focus on the real problem: how to channel liquidity into the broader economy so that businesses can meet their obligations until conditions return to normal.

The government must use European funds and make sure that liquidity mechanisms provided by the European Central Bank to tackle the pandemic reach the banking system and the real economy.

To grant, for example, special-purpose loans on favorable terms (with zero interest rates and a long repayment period that is guaranteed by the state), to help businesses meet obligations to employees, social security funds, the state, banks and elsewhere, for two months. Of course, this lending process must be accompanied by certain criteria and must not be an across-the-board intervention that strategic defaulters, or others, could take advantage of.

Only through liquidity support, will the economy be able to overcome the shock from the lockdown and help the country avoid a new vicious cycle of mass layoffs and non payments on taxes, social security contributions, and loans, etc. which will lead us with mathematical precision to a new deadlock and a new bailout.



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