Olivier Blanchard demands more generous subsidies instead of loans
31 Oct, 2020 at 12:18 | Posted in Economics | Leave a comment
ZEIT ONLINE: Mr Blanchard, Germany has just decided on a comprehensive lockdown, like many other countries around the world. And the first lockdown wasn’t long ago. Do you think companies and governments are better prepared this time around?
Olivier Blanchard: This second lockdown has completely new dimensions … We must protect the companies and workers that are directly and indirectly affected. Europe did relatively well in the first wave … But it may well be that saving the economy will be even more expensive this time. Since the first time government support consisted of a mixture of subsidies and loans in many places, many companies got into debt. If that happens again, the debt will continue to rise – with the risk that the companies will eventually no longer be able to repay the debt. This time, the states should therefore be even more generous than in the first wave.
ZEIT ONLINE: More generous? The rescue programs around the world already add up to billions.
Blanchard: But we have to be realistic: the companies that got into debt in the spring need further support. If these are loans, at some point they will no longer be able to service them. We will see many bankruptcies from inherently profitable companies. That is why we need less loans and more subsidies.
ZEIT ONLINE: Can the European economies cope with such large deficits?
Blanchard: Definitely yes! … Do we have the fiscal leeway for this? Yes. The risk of a debt crisis exists but is low. We have to make this bet because the alternative would be even worse.
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