This combined supply_demand genuinely exogenous shock needs to be faced quickly and in a unique and massive way. It is a unique event. From alternative Macro_theories the measures posed by Francisco work. From a New Classical Macroeconomic RE setting we may expect at least negative growth rates of GDP around 4% this year with AR1 or AR2 effects in optimistic scenarios. Strong and sorpressive monetizacion of aid but at the same time with a clear conmitment to being vigilant against raising inflation, together with a partial debt release can work. Moreover, it might generate a depreciation of the Euro which might contribute to sustain demand in the short term. Even if inflation grew with rigid salaries the intertemporal substitution of labor predicted by RBC models would not operate in the present context. From an NKperspective both open economy models and those with price rigidities react properly as you suggest against supply_demand double exogenous shock. Finally, from a Schumpeterian evolutionary perspective, if I depart either from S+K models or from Almudi et al. (2020, Metroeconomica) and Almudi et al (2020, ICC) the combination of higher inflation, debt renegotiation in leveraged scenarios, together with the corresponding anti_ or post collapse policies (industrial policies ) analyzed in Almudi et al (2020, April, Industrial and Corporate Change) can be very effective. Therefore, I agree with you proposal

Fully agree. I add the intertemporal fair effects of inflation in a Samuelson OLG +Money setting. I really see no obstacle for direct monetization of aid in this unique catastrophe, in the current stagnant zero_lower bound times, and with a debt relief. As Isabel argues and if Krugman proposal on salvation bonds FOR THE US (never for the EU) _europe has no longer a margin for bonds_ worked, we could see EURO depreciations fostering a relatilvely quick recovery.

Monetization of aid will create financial bubbles and increase inflation. There will be increase in consumption expenditure with no corresponding increase in economic output, which will lead to inflation.

Govt spending in times of crisis can revive the economy if economic agents are allowed to engage in economic activities. But in the current crisis, there is much govt spending but economic agents are staying at home. This will automatically plunge a country into recession.

Directed monetization of aid to be implemented as demanded to relief, as the economy begins working in the short run, when hundreds of thousands of firms are going to face huge difficulties and financial shortages: believe me, No Bubbles at all. Perhaps inflation (I do not think so in zero low bound conditions with an deccelerating economy). Still if it is the case that as long as the economy begins to work we have inflation because of (at this time catastrophic collapse) direct monetization: welcome inflation! Good for public budgets, good to erode the real levels of debt and great to finish with the liquidity trap. Moreover, the charge will be on liquid savers (mature generation) and not on future (today young non_infected) generation.

Anti-crisis economic policy based on mild monetary policy, known from the model of anti-crisis programs launched in the autumn of 2008 and currently used in connection with the development of the SARS-CoV-2 Coronavirus pandemic causing Covid-19 disease may lead to positive and negative effects for the economy when it is used in a period longer than half a year and in the scale of the helicopter money model, a large share of financial involvement, money printing relative to GDP. The positive aspects are the reduction in the scale of the slowdown in host growth, decrease in production and investment, decrease in income and increase in unemployment. On the other hand, potential negative effects are an increase in inflation, an increase in the debt of the state finances system, and launch of additional social programs that will be difficult to give up when the economic crisis ends.

Regards

Dariusz Prokopowicz

Thanks a lot for all your replies. Just note that we are currently not in an economic or financial crisis (this is what we should try.to avoid, and we have still time and margin for that). We are in a fully exogenous shock + 2 months lockdown imposed on systems which were working ok. Thus, a serious communication by ECB authorities clearly stating the limitis of the extraordinary monetization that I suggest, could avoid some of the negative consequences. If we combine a Kydland_Prrescott or Barro Gordon approach for the communication and guiding of the extraordinary policy, and we consider that bubbles and high inflation episodes are currently explaine by RE-stochastic difference equation models of very low order, we could rule out the bubbling solutions of the difference eq. And we could focus on the Fundamental solution of the equation which can be made a bounded series of expected values. Drawing on this frame, and in the specific conditions of ZLB macro_circumstances, and always following a time_consistent commitment rule, itcan be done. Otherwise, partial partnership in bonds, or just taxes, or budget cuts which are unfeasible in the upcoming context of fast and pretty generalized rising Debt ratios in large economies (if we do not monetize COVIDaid) will not only be intergenerationally unfair, but will end up in a EuroZone dissapearance in a decade. Btw, we all know now in our generation that the EURO was a bad idea, but perhaps we should try a gradual disconnection insead of a collapse.

BANK OF ENGLAND has announced exactly these measure in the morning. We will see whether it works

I want to show example of Ukraine. Our President and Council implemented some laws that are affecting all the sides of economy. In this difficult time our Prime-Minister is rising prices on electrecity, local goverment on utility. What's going on? And these politicians want Ukraine to be part of the EU...

The issue of financing the world's economies after the covid 19 crisis is the subject of a series of articles in various newspapers around the world. Unsurprisingly, a number of defenders of the liberal system are rising up in defence of public bonds and their necessary repayment. In this respect, it is worth noting the statement by ECB President Christine Lagarde, who on the one hand states that there is no question of not repaying debts (which is of course politically unavoidable today) and on the other hand states that it will take much more than 10 years to repay the debts contracted in this crisis. This paradoxical statement clearly shows that, without wanting to say so openly, which is politically impossible, the various monetary authorities are moving towards an issuing economy. Our colleague Francisco is in fact proposing an economy of monetary issuance limited to the necessary financing of the covid 19 crisis. It is worth looking back in history to see how the various E@uropean states have managed the issue of public debt throughout their history. Thus the Spanish monarchy at the time of its empire in the 16th and 17th centuries managed this public debt both through the plundering of gold and silver from Latin America, the increase in taxes, and also through defaulting on payments, enabling it to restructure its debt, reschedule it, reduce interest and put its Genoese and Dutch bankers out of business. This is what is happening today with all the arrangements that the IMF has made with a number of emerging countries, whether in Africa or Asia. For my part, I agree with Francisco's proposals; and in this respect, for the next few years it does not seem to me that the issue of inflation is the major risk, but rather that of depression through debt and deflation (see Fisher). The whole question is how this liquidation of public debt will be able to take place (which began in the history of the Republic of Genoa with the casa de Sand Giorgio, where the government of the Republic authorized the holders of public debt securities to use them as a means of payment in their transactions). It is therefore conceivable that a provision of this kind will eventually reach the negotiating table not immediately but in two, three or four years' time. In this provision there is the role that different countries can play. In this respect the position of the United States is obviously central. As far as Europe is concerned, it could follow the American central bank and the American government if the latter were to move towards an economy of monetary emission, which is not yet the case. The forecast for unemployment in the United States is moving towards the catastrophic figure of 40-45 million people within two months, which is higher than the worst figure of the 1929-1936 crisis. Finally, it should be remembered that in the case of France, at the end of the Second World War, the repayment of debts contracted between 1945 and 1950 by the State and by companies represented, in terms of purchasing power, only 10% of the value of the debts contracted. The explanation is obviously the double-digit inflation that France and other countries experienced after the war. The losers were pensioners, holders of debt securities and, to some extent, civil servants. The winners were companies, employees and the French economy as a whole.

Of course we are talking here about a completely excepcional policy measure corresponding to a random and unique event: this pandemia. But the design of the ECB and the Eurozone itself is so defficient and, at the same time, so rigid that I am afraid that, either the club of Euro_nations realizes that institutions must coevolve with historical societal events and adapt, or...it is just unsustainable.

The ECB -- given the microscopic rates -- can issue massive infrastructure and development bonds to accompany predicted support. Major EU-wide projects -- wind-solar-storage grids, medical-pharmaceutical research support, free [or nearly free] advanced skills and graduate school training, et al.

Ironically, EU [and other developed nations] have an underinvestment problem, largely the product of a new "dual economy" based in financialization. Removing support for high-speed trading and short-term capital gains, along with the generation-long projects discussed above, could simultaneously create new jobs and radically increase productivity [and skills-driven labor bargaining power].

I agree with Francisco Fatas-Villafranca.

It seems that a lot of the EU members have no other way out of this crisis than either levying its cost on citizens in a harsh way, or receiving huge injections of money from the EU to assist households and firms.

Union itself is in a difficult position. Many members are not willing to aid others, and it may even beneficial for them not to do it. Think to Dutch firms absorbing shares of market from foreclosing Italian and Spanish previously-competitor firms!

Yet, being in a Union is like an insurance. It's hard to refuse paying when the accident happens... All in all, I think EU should end up financing aids. Now, whether the resulting EU debt should be monetized or shared among members and repaid in future is hard to say. For now, I would suggest to sell it to the ECB, which pays with freshly printed money, and postpone the repayment problem a couple of decades from now.

I agree with Bebedetto. Moreover, I would insist in that if we are really a consistent club of partners, is not just postponing the repayment. Just generate debt relief, truly industrial policy instead of depending on the leadership of US or China (eg 4G/5G technologies and benefiting from controled inflation (inflation can be managed as Francisco suggests).

Fortunately, nominal interest rates today are so low compared to inflation that real interest rates are negative. States win by borrowing. As all countries are in the same boat, an overshoot of the hitherto acceptable rates of debt ratio is not so serious. Taxation in many European countries is already too heavy. Putting the cost of the Covid-19 on the working population now would greatly hamper the recovery of the economy. On the other hand, private savings are abundant. The creation of eurobonds at European level bought by households and well remunerated is a solution to study carefully.

My doubts are the following ones: 1) the repayment of interest and debts will last for at least two decades. This involves intergenerational equity problems. In the long run interest rates are not going to be that low. Furthermore, as we will see in a couple of months, the destruction of activity because of the Great lockdown will unchain the rise in interest rates (with Italy, Spain and France in huge danger, risk premium will rise, you will see). This fact, together with long run periods of repayment of debt and the perspectives of low long run growth (geopolitically, the US.China tensions on 5G technology are going to slow_down trend growth at least for a decade) , mean that the next generation may well be totally unable to face the debt WE CuRRENT GENERATION have issued!

2) It is clear that the EU is no more than a trade union. Without a clear convergence of political and geo_strategic and legal views, it is very dangerous a long_run involvement in mutualized debt. This would increase inter_partner tensions in the lobg run (given the difficult future times that must be realistically expected). These are my concerns on Eurobonds.

If the growth rate of the GDP is higher than the average rate of repayment of the public debt then the snowball effect will not take place and the weight of the debt will not be unbearable.

The repayment of debts contracted because of COVID-19 will not last 2 generations but less than a decade.

In France, for example, the average duration of a public loan is 8 years. A loan made today in France at 1.3% with 1.4% inflation (2020 inflation) is not that expensive and the rate is fixed over time. There are also many public loans that are made over periods of only 2 years, which preserves future generations. Certainly, interest rates in the future may go up, but for the moment this is not the case.

Eurobonds should not be seen as a shared debt but rather as a public bond from Europe to revitalize the European economy as a whole by funding future investment programs.

We will see, I really wish that you are right! But I do not see the structural conditions that you suggest. Neither long_term significant growth rates, nor normal times for debt repayment (which I believe will re_negotiated again and again). Besides, for the time being, I am reluctant for solutions such as Eurobonds which make European nations more and more co_responsible of funding investment projects. In any case, I really wish that you are right, much better for all. We will see.

The problems of intergenerational equity have worsened in recent years, with the triumph of greed in an environment where the conivence between the business community and regulators has become a real moral scourge. The age and gender structure of the political class will certainly have a direct impact on the choice to be made. If the political class is young and egalitarian in terms of gender, the debt will be less popular to overcome the effects of the crisis. But if it is a political class of young pharaohs, they will choose the debt since they will not be there when this debt becomes due.

I am a Social Psychologist, Lawyer, Military Psychology and Psychology of Terrorism expert. I want to base my reply to the foregoing discourse to the African society and experience. Before the COVID-19 (Chinese virus), Africa has been bedeviled with developmental challenges. The incidence of COVID-19 (Chinese virus) pandemic has exacerbated the already impoverished African nations. While many nations currently dislike and distrust China, Africa is helplessly embracing China. Unfortunately, China is economically very dishonest and ruthless to Africa. I see a situation in which African nations will run to American and European countries in future for help when China's interest in Africa will become devastating. By now, African should have attained statehood of solving their problems instead of depending abroad for any assistance, which are not genuinely rendered from abroad. To be able to solve their own developmental challenges, African countries and their leaders at all levels must learn and practice genuine good governance, hate corruption, selflessly serve the citizens and society, as well as develop indigenous/native grown economy, government, technology, science, and way of life. Essentially, BIAFRA INDEPENDENCE will be source of pride that Africa can solve their existential challenges.

I am sympathetic with Francisco’s position, but I cannot agree with his statement that “… we mid-age and mature people are the ones who must bear the cost of the COVID-crisis. And this means inflation (never debt).” Apart from some unpleasant consequences of inflation (cf. Keynes (1923) A Tract on Monetary Reform, Chapter 1), it is actually not true that inflation would affect only mid-age and mature people because even young people would be affected, either directly now or indirectly in the future due to reduced bequest. It may be that monetization is recommendable, but its justification should be different from the one advanced by Francisco.

A propos of Benedetto Molinari's observation that "being in a Union is like an insurance. It's hard to refuse paying when the accident happens... " I would urge to consider the fact that any insurance, when ALL the insured are damaged, becomes ineffective.

As we argued above, the ECBank is moving finally! exactly in the correct direction (hidden monetization). This was the only option. Of course the ECB has moved with the support of the the real owners of the EU i.e. the large top ten American financial funds (everything in coordination with IMF and the Fed).

I strongly believe that these and other recent movements are coming out because the hidden lords have finally decided that China is no longer an option (-they are just gradually leaving the área). The very last actions of these funds in Mexico and Argentina (see AMLO...sudden conversión..) and the movements within Santander and Repsol (e.g) indicate (in my opinión) that Europe and Latin America are, again, recovering interest for the hidden American Financial Lords. China is no longer an option, and the Empire is changing geo-political priorities.

I do not believe that neither Italy nor Spain will have to be rescued (although next year they may become close to a solvency crisis), because both Latin America and Europe are recovering the role of priority areas for the owners of the world-wealth (the top ten Large financial funds and a few sovereign funds .e.g.Norway and middle East funds) . The Chinese fund is recovering control of their national assets because they know that they have lost the confidence of the Lords. 5G technology attempts, and the lack of transparency during this crisis is going to re-configurate the Geopolitical landscape.

Well, Europe is better placed with institutional systems and strategies to recover from the COVID-19 (Chinese Virus). Africa with its maximally corrupt politicians are worst of, and in a frightening position. All over the world, efforts must be made for China to pay for this global danger. And Europe and America should be at the front of taming China and recouping compensations from China. This is one major way of protecting European youths and future generations from future bio-terrorism, or techo-science oppression. Africa must learn this.

Imf told them

to in return for huge loan

In my opinion, the scale of inflation may even deepen if the SARS-CoV-2 (Covid-19) coronavirus pandemic returns in the coming years and the economic crisis, the low level of economic growth will continue in the long run. In such a situation, monetary policy will continue to be relaxed. Therefore, the key issue will be to change the economic relationship of the euro area with other economic regions of the world.

Greetings,

Dariusz Prokopowicz

I would like to add a few words to my statement above. Well, in the process of pandemic risk management in the field of shaping the anti-crisis socio-economic policy, as part of the so-called The anti-crisis shield and other anti-pandemic instruments made certain mistakes. Well, in some countries, over 80-90 percent. expenditures from the state finance system were allocated to the anti-crisis socio-economic policy in order to maintain the continuity of operation of commercially functioning economic entities, while a relatively small part of these additional, interventionist financial resources was allocated to the preparation, adaptation and strengthening of the health care system in order to protect citizens' health, especially in the field of treatment in hospitals of all people who suffer from serious Covid-19 disease, so that this treatment is performed at a high level and that there is no lack of a ventilator, hospital bed and medical care. As public debt is growing anyway, strengthening the health service should be a priority.

Best wishes,

Dariusz Prokopowicz

The COVID crisis is engendering political tensions also in Democratic societies (US, Spain, e.g.):

Evolutionary economics can contribute to the study of some DEMOCRACY dynamic dilemmas. We believe that these tensions can and should be faced from an evolving complex system's perspective. These problems are urgent (as we have seen in US Capitol-January 2021). Here I pose a link where we present a draft in which we identify 3 dynamic paradoxes of Democracy. See also paper attached.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3763326&fbclid=IwAR1QaK4Pe9c2rkOyoe5NxAeyryvG1w3u7JQHmzZnu6OKA_lSQofP5_TAusg.

We argue that idealistic approaches to Democracy are not enough.

Increasingly clear the saddle-path nature of the Great Moderation historical period. Turbulent dynamics in the 21st C. confirms that. Attach a theoretical explanation for that.

I fully agree, Isabel. Look at the US unemployment rate. Graphs attached.

In order to limit the scale of the increase in unemployment in the context of the economic downturn caused by the SARS-CoV-2 (Covid-19) coronavirus pandemic, the governments of individual countries use various anti-crisis, interventionist budgetary and fiscal policies, etc. . Maintaining employment in companies is the main goal of state aid aimed at economic entities. Additional, "anti-crisis" money is introduced into the economy by the central bank through the direct purchase of subsequent issues of treasury bonds. In many countries, the mechanism of anti-crisis measures of the state applied in this way worked because the deep economic recession that appeared in the second quarter of 2020 in the following quarters gradually decreased the scale of the recession and the downturn in the economy. Only those sectors and sectors of the economy, ie mainly the sphere of services related to tourism, enterprises operating in the hotel sector, catering, etc., on which the state continues to impose lockdowns, are in a difficult economic situation. On the other hand, usually most of the remaining industries and sectors have already recovered from the downturn phase, and some manufacturing industries recorded an increase in orders and improved their economic and financial situation. In the coming months, the only significant cost of the anti-crisis socio-economic policy conducted in this way will be an increase in inflation and a possible decrease in the exchange rate of the domestic currency against other currencies.

Best regards,

Dariusz Prokopowicz

I hereby leave a link for free download and attach a file of our book COEVOLUTION IN ECONOMIC SYSTEMS, published today by Caambridge University Press. Analysis and policies for reconstructing economies after the COVID lockdown and pandemic appear:

https://www.cambridge.org/core/elements/coevolution-in-economic-systems/5791139A5BB315562FA5FCAE0B8B3AFD

One of the most fascinating topics I have found in studying COEVOLUTION IN ECONOMIC SYSTEMS, is the coevolution of theories and prototypes (and implementations) of visions in urban planning, and the surrounding socio-economic circumstances:

https://www.archdaily.com/871380/when-frank-lloyd-wright-and-le-corbusier-had-a-public-argument-in-the-new-york-times/

The model in Chapter 3 of our recent book , COEVOLUTION IN ECONOMIC SYSTEMS:

Coevolution in Economic Systems (2021) Cambridge University Press.

https://www.cambridge.org/core/elements/coevolution-in-economic-systems/5791139A5BB315562FA5FCAE0B8B3AFD

and the theoretical framework in chapter one are perfectly suitable to address this topic. In the case we are working out now, there are fascinating implications for post-COVID revitalizing policies, technology-driven Green cities and the evolution of knowledge.