Corona and financial stability 2.0: Act jointly now, but also think about tomorrow

Arnoud Boot, Elena Carletti, Hans-Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon () and Marti G. Subrahmanyam

No 79, SAFE Policy Letters from Leibniz Institute for Financial Research SAFE

Abstract: In this SAFE Policy letter on the implications of the Coronavirus for financial stability in Europe, we address how to mitigate a systemic financial crisis that is propagating in slow motion, as we speak, and which we identified and diagnosed in the SAFE policy letter 782. This second letter emphasizes the speed at which the underlying unprecedented real sector cash drains and how asymmetric national solutions may be destabilizing in the longer run. Our main conclusion: A coordinated fiscal plan at the pan-European level, complementing national measures, is crucial for financial stability in Europe. The plan has to be substantial in size, implemented immediately, and backed by a common fiscal backstop. While today's policy actions have to be undertaken inevitably at a quickened pace, it is paramount to also account for the longer-term implications of the chosen policies and instruments for a post-crisis Europe now. (...)

Keywords: coronavirus; financial stability; systemic risk (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-rmg
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