Crisis, we have one… but which one?
As you have noticed, dear readers, the global economy tolerates certain losses because of the spread of coronavirus. The situation is inevitable, but no less frightening. Does what we have now look like the crisis of 2008 and how is the world community going to deal with it? We’ll talk about this today.
Economic crisis’ stages. We need some people
Many economists are wondering about the cause of the current crisis. What to blame – supply or demand? The answer is not that easy to find, because both the basic market elements have not declined, but simply partially evaporated due to the fact that people sat in quarantine.
Quarantine, in its turn, is the peak stage of the sanitary crisis, but only the first stage of the economic crisis.
To the inevitable losses from the lack of production and demand we can add the problems of each family, private enterprises, as well as public debts. This seems to be quite a logical development of events, because people due to lack of work will not have wages, funds to pay loans, mortgage debts, losses based on changes in the securities market and so on.
Various countries of the European world also do not stand aside. If citizens do not have money, then there wouldn’t necessary be tax payment. This will entail the impossibility of a state to maintain its position as active participants in the global economic community. Moreover, if a state such as Italy, for example, is in an unstable economic situation due to non-payment of state debts, at this stage its situation will worsen significantly.
*The layering of the financial crisis leads to the second stage of the economic crisis, to which we are gradually approaching.
What to do?
It is worth noting that this crisis is different from what we saw in 2008, since the blow will not be on the banks themselves, but on enterprises and households, in fact on individuals and only then on the banking system.
What will be the response of the world community to the current state of the economy? Let’s outline 3 main measures that European countries are taking in order to mitigate the effects of the crisis and not bring the situation to the last stage – the political crisis.
1. The main measure is the preservation and provision of jobs to all unemployed labor cadres after the pandemic. Further, the reduction of taxes and interest rates on mortgages and loans, e.g. the weakening of the state’s oppression over citizens, since citizens do not have money to pay taxes.
2. Strengthening the role of the European Central Bank. At this stage, the ECB will have to control not only monetary policy, it will have to, let’s say, humanize itself and provide customers with more favorable terms of transactions with banks. ECB will provide greater authority to banks, increasing their liquidity level (the ability of money to pay off in a short time). So we will achieve the activation of all internal assets of banks to recover losses incurred due to the pandemic. At the same time, it is important for the ECB to maintain the free movement of money in the domestic market.
After the crisis of 2008, banks developed a system of control and monitoring of critical values in the work of financial systems. This means that the risk of reaching a complete depletion of monetary resources is under control.
3. All problems arising in the economic space will now be resolved at the European, and not at the national level, as it was before.
In conclusion, we can say that cooperation between European countries will help to avoid the further development of the economic crisis, but this process will inevitably be accompanied by some difficulties.