Government by the sleep-deprived

Posted by: Paul Donovan

08 Apr 2020
  • European Union negotiations follow a set pattern. Crisis, meeting, deadline, miss deadline, overnight negotiations, and compromise by sleep-deprived participants. Discussions around a common European fiscal response to the current crisis are following this pattern. A common European approach would be an important signal of unity, but as countries can fund themselves for now, it is not very urgent.
  • South Korea has launched a new stimulus aimed at providing cheap loans to exporters. The package is a reminder that this is mainly a global demand shock, and a disinflation force.
  • US President Trump has been talking optimistically about an early end to the US lockdown. The lockdown is imposed at a state level. It is not clear that US President Trump has any authority here. Fear of the virus, not the virus itself, is most damaging economically. It is important that ending a lockdown does not increase fear.
  • The US Federal Reserve minutes are due. Central bank policy is the junior partner to fiscal policy. The International Labour Organization is guessing that globally 6.7% of working hours will be lost in the second quarter. It fits with the idea that 2% to 3% of GDP is lost for each month of lockdown (though data is very unreliable).

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