Resetting under fog

Finding an ideal headline was a struggle. One to represent the overwhelming fear and panic over the Covid-19 outbreak. One to reflect the anxiety, as well as the public’s conformity to emergency measures and isolation. I felt it needed to depict the numbness, fogginess and uncertainty about how the pandemic will end.

One thing is for certain: this crisis is like no other. It is neither financial nor economic in its origin. World leaders were caught off guard. Most countries froze their economies in complete or partial lockdown. The situation is different in Sweden, Iceland, South Korea, Taiwan, Japan and Singapore. So far these countries have avoided lockdowns by conducting continuous testing and imposing quarantine only to those infected.Another certainty is that the global economic impact of the pandemic will be severe. Some estimate the economic downturn will be worse than the Great Depression or the Second World War.
All the while, many questions remain unanswered. How will markets stabilize? What will the economy and society look like afterwards? When will this crisis end?

On March 12, the day after US President Donald Trump announced a 30-day suspension of travel from Europe, the markets plunged. Trading stopped for 15 minutes. The FED pumped 1.7 trillion USD for short-term loans, but this did little to help. The stock market plummeted, posting about 40 percent in losses. Billions of dollars were shed in just 48 hours.
As for the global supply chain, it had been disrupted since January when basic imports from China for production lines in the West were suspended (automotive industry, mobile phone manufacturing, pharmaceuticals, etc.) This was followed by: (i) an abrupt change in consumption patterns due to the uncertainty over the coronavirus behavior; (ii) a negative adjustment in producers’ expectations with a plunge in demand for industries related to tourism, aviation, hospitality, transport as the imposed lockdown created further uncertainty over the livelihood of the sectors after the crisis; (iii) a serious hit for informal and unregistered laborers worldwide who lost their jobs with no access to formal recourse, further disturbing the system and their survival as they are mainly cash-based and unbanked (estimated over 30 percent); (iv) government-run health systems that are constantly at risk of collapse.

Fear is spreading. Pressure mounted on governments to pump more liquidity into the markets, while economic restrictions are increasing in Europe, the US, Latin America, India, Africa. In the US, the Congress released an additional 2.2 trillion USD. The European Commission released all fiscal requirements from their member countries for 2020. Even Greece has been released from meeting the exorbitant requirement of 3.5 percent primary surplus for 2020. The ECB engaged in further QE including even countries with lower rating such as Greece. Eurobonds have again come on the table with not much success.

But are such responses enough? Providing support to lost incomes for 30 or 60 days and handing out tax breaks can help reduce the sudden shock of lost earnings and market demands.
However, we are operating in the dark. Let’s not forget we are struggling in a global environment of slow growth, near-zero and negative interest rates, over-indebted economies (average eurozone debt is 84 percent, in the late 1980s Latam bankrupted with an average of 60 percent).
The questions still remain: For how much longer will we have a horizontal shutdown? Which sectors will change and which ones will vanish? How will we function in a new unknown economic model? Will there be a safety net for all our citizens? Will we be able to cope with future pandemics? How can we prevent a similar shock?
We should be ready to see sovereign debt levels skyrocket (some will get over 180 percent) while a global recession is projected at minus 2.5 percent, a very grim picture, compared to minus 0.1 percent during the 2008 global crisis.Uncertainty is a big threat. Citizens and markets want and need to trust their leaders, to be told the situation is under control.
Obeying the lockdown for a few weeks or months is possible, but an endless continuation of such measure will be impossible. It will prove 1) exorbitantly expensive, for countries with regular debt levels, and fatal for those with already enormous ones (e.g. Italy 135 percent, Spain 98 percent, France 98 percent, Greece 180 percent) leading to deep recessions; while 2) devastating to citizens that may start becoming unwilling to keep up collaborating to the orders as they will be rundown economically and psychologically (with surging unemployment 13 percent from March 26 to today, rising at a speed unmatched in American history, poverty, bankruptcies, hunger, suicides).

Leaders follow each other with similar measures: social distancing and disincentivizing test taking. This unforeseen health disaster seems however to have an unforeseen end.
With global recession being inevitable, perhaps investing more in scientific testing would prove less expensive even for the short run. With no use of secure data registries, enormous global levels of informality in labour and assets, sporadic testing, anecdotal info, the crisis may last much longer than the virus itself.

It looks like policies are being forged in fear and that small economies follow the larger ones. Instead of “herd immunisation” I am afraid we are seeing a silent type of “herd leadership.”
This is why priority should be to collect data to best plan to reduce infection and possible mutations.
In the era of scientific and technological advancements, the age of big data and AI, why do we follow less than scientific policy approaches based mainly on isolation, struggling to contain the crisis for the present and future?

People should trust their leaders have the situation under control. Adjusting expectations requires predictability. Simply pouring money into the economy does not stop the economic meltdown.

Let’s move towards strong, ethical, visionary leadership. One that is guided by evidence-based policy. Otherwise we’ll be scrambling to escape the quicksand and fumbling our way through the fog. Definitely not a good strategy.

Elena Panaritis is CEO and Founder of Thought4Action, former World Bank economist and honorary member of Hellenic Parliament in 2009-12.


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