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The empty streets of New York and Los Angeles
Economic Response
Pros
Cons
The United States government decided to suspend the student loan payment starting from March 13th to September 30th, 2020. This rule is written in the newly established law called the CARES Act, which regulates:
Additional regulations in regards to the CARES Act:
1. Full flexibility in EU fiscal rules;
- activated the General Escape clause in the Stability and Growth Pact
2. Eases State aid rules;
- Allows states to provide various types of direct aid to the Companies and SMEs
3. Coronavirus Response Investment Initiative (CRII);
- €29 billion of co-financing from the EU budget + €8 billion of unspent EU cohesion money + the unallocated €28 billion of cohesion policy funding within the 2014-2020 cohesion policy programs + €800 Million of EU solidarity Fund
- CRII+: allows mobilization from the Structural and Cohesion Fund of the EU
4. Pandemic Emergency Purchase Program (PEPP);
- Providing additional liquidity for company by temporarily purchase assets worth of €750 billion (totaling to €1.1 trillion) to help absorb the shock.
5. European Investment Fund liquidity incentive;
- Provide up to €40 billion for to alleviate liquidity and working capitals.
SURE (Support mitigating Unemployment Risks in Emergency) as a financial aid for workers that is affected by the Covid-19 outbreak.
BACKGROUND:
- Businesses are limiting their employees activity
- Short-time work schemes may result in increase of public expenditures.
IMPLEMENTATION:
- EU members request to the Commission for a loan in financing this sudden increase in expenditure
- A proposal is made by the Commission that will be handed to the Council
- Acceptance of loan for the member state.
FUNCTIONS:
- Cover the cost of short-time work schemes during the crisis.
- Sustaining the income of households and maintaining the economy productivity.
Benefit
Help companies to weather the damage from coronavirus as they have better access to funding
Drawbacks
Chinese financial authorities claim that the Coronavirus pandemic has caused a cut on China’s growth in half during the first quarter. The shrank following number:
As part of the solution, China's Central Bank sets a monetary policy (shown on the ppt) with $14.3bn injection into the financial system
To sum up, the COVID-19 pandemic has had negative impacts on the economy of states all across the world including China, USA, and the EU, with some speculating that this may lead to a long term recession or even depression. The sheer impact to the economy is due to the fact that this pandemic has spread across all regions of the world, which forces governments to ‘stall’ their economy for the sake of their people’s health and well-being through measures such as restricting working outside of home, etc. Furthermore, as China is deemed the ‘factory of the world’ as many products are manufactured in China, the shutdown of Chinese manufacturing industry has created a supply chain disruption that leads to low supply domestically & abroad, whilst also paired with the low demands.
Measures that governments across the world takes varies, but it revolves around cutting down of interest rates, handing out loans, pardons of loans, waiving credits, financial injections, and giving bailouts to major companies. These measures mainly aims to sustain the population's livelihood, and protect corporations from going bankrupt to prevent further decline in the economic system. However, such measures raises questionable issues such as the effectiveness of the loans, the ability of businesses to pay their debts amidst low income, and the effectiveness of capital injections as the period of the pandemic cannot be predicted.