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The cost of economic stagnation is immense and constantly increasing. The leading economists agree on this. But while some call for immediate opening steps, others warn of a second wave.
Covid-19 brings huge economic losses. Should restaurants and shops reopen after Easter?
Austria and Denmark are the first countries in Europe that want to slowly leave the stagnation behind. However, its eastern neighbor, for example, also has significantly fewer Covid-19 infections and deaths than Switzerland. The Federal Council plans to provide information on the first steps towards normalization on April 16. The NZZ asked economists at various universities in Germany and Swiss Switzerland what strategy the Federal Council should adopt and what conditions must be met to facilitate the process. Here are your answers to the most pressing questions.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
Very positive The combination of a consistent, but not excessive, international closure and specific measures to support production makes sense. With short-term work and non-bureaucratic liquidity support, the Federal Council is focusing on the right priorities, which should allow production to gradually increase after the crisis has peaked. It is also particularly useful that new structures or funds are not created, but that everything is done within existing institutions; this allowed it to take effect very quickly.
The measures were extended until April 26. What are the requirements to loosen?
The deciding factor is that a real change in the trend of new infections has been achieved. And that there is enough evidence available. I would be very careful with quick and aimless loosening. A new wave of contagion that requires additional, possibly tighter, blocking should be avoided. This would lead to a significant increase in uncertainty, which in general would result in significantly higher economic costs. The pace of relaxation is less important than its sustainability.
What relief could you consider in a first step?
This is primarily a matter for medical experts. However, it seems logical to me that you start with points of sale where you can comply with the rules of distance and hygiene without any problem. What is possible at the grocery store should also be possible at the garden center, or to some extent on clothing or in bookstores, if discipline is appropriate.
Are there any measures that have so far been neglected?
The previous step-by-step approach seems very useful to me. Don’t work forever on sophisticated liquidity measures that take each individual case into account, first start with rough and relatively simple interventions, and then try to cover what has not been achieved in a second step. Two things seem important to me below: First, clear and early communication about the relaxation strategy, possibly in settings. Secondly, the timely preparation of new measures should an economic depression arise.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
At the moment, I see little immediate need for correction. The concentration of measures to maintain production seems correct to me at this stage. We all hope that is enough. However, for me it cannot be denied that the danger of a sharp drop in overall economic demand could threaten if it continues any longer and the uncertainty remains high; Initial indications already point to a possible drastic decrease in consumption. In this case, tax breaks should be seriously considered to boost demand.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
Jean-Pierre Danthine
The Federal Council could have used stricter measures before, such as closing factories like Ticino. Because a large portion of the population is likely to be infected with the virus sooner or later, the success of the measures is likely measured by preventing hospitals from overloading themselves. The Federal Council’s strategy appears to be successful at this point.
The measures were extended until April 26. What are the requirements to loosen?
First, the number of new infections must be significantly reduced. Second, measures must be available to prevent a second great wave of infections. This includes systematic testing of people with symptoms and careful observation of all those who are sent back to work after the block is released, using contact tracing.
What relief could you consider in a first step?
Priority should be given to young and non-vulnerable workers who currently work in particularly restricted sectors. A second group should be those who have already been infected and who have developed immunity to the virus.
Are there any measures that have so far been neglected?
The most serious omissions were made before the crisis. The preventive purchase of medical technology supplies such as masks, protective clothing, test reagents, and active ingredients for treatments has been neglected. After the Sars epidemic, one should have invested in finding a worldwide antiviral vaccine.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
The Federal Council should develop criteria for how parts of secured loans to small and medium-sized businesses and the self-employed could be waived. The goal should be to avoid unwarranted bankruptcies so that the economy gets back on track quickly after the pandemic.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
The Federal Council, like virtually all European governments, the United States, and most of the media, initially underestimated the danger of Covid-19, but then acted quickly and implemented the necessary restrictions for the economy and society. Since very fast action was required, the “large bucket” was used here, there simply was no time for finely balanced measurements.
The measures were extended until April 26. What are the requirements to loosen?
The most important prerequisite is an objective inventory of the actual infection rate and its distribution among cantons, largest agglomerations, and age groups. Due to omissions in testing, we do not have this information. This must be remedied quickly so that relaxation measures can be focused.
What relief could you consider in a first step?
In cantons where the infection rate is very low and where sources of danger can be quickly identified and restricted through periodic testing and follow-up of infection cases, one should broaden the range of permitted economic activities and allow certain forms of schooling again.
Are there any measures that have so far been neglected?
There are significant omissions in the measures that have been taken. So far, the Federal Council and Federal Office of Public Health have done nothing to conduct broad-based tests based on a representative sample of infections. Furthermore, very little has been done to identify routes of infection among people who use contact tracking. Restricting testing to people with symptoms and largely neglecting contact tracing is a mistake.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
The Federal Council’s economic policy measures (generous short-term work agreements, loans through the banking system and guarantees) were correct. It remains to be seen whether the amount is sufficient and whether direct subsidies can be avoided, but currently I see no significant need for correction.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
The measures were necessary to break the exponential spread of the infection. Otherwise, the capacity of the health system would not have been sufficient. Decreasing infections show that the measures are effective and dosed correctly. It would have been associated with much higher costs and probably little added value if, as in Italy or France, freedom of movement and economic life had been further restricted.
The measures were extended until April 26. What are the requirements to loosen?
Infections should decrease again so that there is sufficient reserve and waiting time to recover the loosening if infections increase again. This requires better data quality. Aggregation of existing cantonal or hospital data at the federal level should be faster and more accurate. We also urgently need additional data to estimate the extent of Covid-19 spread. This is the only way we can determine the safety margin of infections for more precise loosening.
What relief could you consider in a first step?
If we have a sufficient safety margin, relaxation should be done quickly and in line with the risk. The economic costs are immense and are increasing disproportionately. Mandatory schools will open soon to ease working parents and ensure a fair education. There is an accumulation of demand in many industries. Companies need spare parts, patients wait for interventions. It is often easy to impose distance on working life. We will have to be patient when it comes to bigger events in sports and leisure.
Are there any measures that have so far been neglected?
To get supply chains and production sites in the auto industry back online, international cooperation is key to alleviating the situation. Responsible flexibility is an international public good because our companies can once again function better in the production process based on the division of labor. And very elementary: with the high costs of blocking, it is always worth investing more in data analysis and medical protection items.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
The package has worked very well so far. Short-term work avoids high unemployment and supports demand, and Covid 19 loans also ensure liquidity. I reject A-fund-perdu contributions without the state’s share of the profits, especially since the estate receives a risk premium in good times. We must not repress the pressure to innovate towards new business models with comprehensive insurance. Thanks to the debt brake, we have low debts. But the longer everything lasts, the longer the government debt in Switzerland will restrict the scope of economic policy.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
Margit Osterloh
Bruno S. Frey
The medical aspects must be better weighed against the huge financial losses. Otherwise, our health system, the capacity of our hospitals, the quality of retirement homes and the life expectancy of our young generation will deteriorate. The closure of all stores is disproportionate. With proper precautions, such as keeping your distance, you could open your mouth guard and use disinfectants, garden centers, hardware stores, florists, etc.
The measures were extended until April 26. What are the requirements to loosen?
The cost of dismantling large areas of the economy is already so high that it should definitely be reduced. Virological and epidemiological aspects should not be the only prerequisite. Additional physical and mental illness due to unemployment and isolation must also be considered. Not only can medical experts be heard, but also those from society, the economy and the humanities.
What relief could you consider in a first step?
Most stores and restaurants could open immediately after Easter, as long as the gaps are kept and masks are worn. Parks should be opened immediately because compliance with distance rules can be enforced.
Are there any measures that have so far been neglected?
Correct information on the suitability of the measures is lacking. Instead of scaring about new infections every day with curves that are only partially significant, tests based on representative samples would be urgently required. In public discussion there is a “virocracy” with the same experts. There are hardly any reports of divergent views. There is also too much centralization, too little attention paid to regional differences. Federalism is and continues to be beneficial. Concrete exit strategies for various scenarios are also lacking.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
The real economy must be boosted again immediately. Huge loans cannot create a supply of goods and services due to work bans. The measures must take into account the significantly lower susceptibility to disease of younger people and the broad immunity of people cured by the virus. The activity of independent artists, creatives and innovative founders must be revived. Massive government intervention and the growing proportion of the government must be quickly dismantled. Authoritarian measures inhibit the economy and society.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
Christoph Schaltegger
The social risk posed by the virus can be derived particularly from the speed at which it spreads. If an infected person infects more than one person, the epidemic spreads exponentially. Therefore, relative measures should be based on this threshold. From this perspective, a unified strategy is the wrong way: not all regions and industries are affected equally. Measurements appear too late and too weak in one place, too early and too strong in the other. This means that the insurance function is lost, so less affected cantons and industries can supply and support colleagues in need elsewhere.
The measures were extended until April 26. What are the requirements to loosen?
This would require comprehensive and representative testing. You can then find out in which cantons and sectors the spread is high or low. The companies could be divided into a cantonal sector matrix. This would allow imposing a blockade only in those cantons and sectors where the spread is strong. In contrast, restrictions could be lifted in cantons and industries with low risk of infection. In cases where the canton or industry pose a high risk, work would be possible if additional protective measures were taken.
What relief could you consider in a first step?
Undoubtedly, the focus is on opening primary schools and kindergartens, as well as those sectors that can easily comply with the distance rules. With the help of the cantonal sector matrix, the economy and social life could gradually increase again. At the moment, this appears to be the case, especially in central and eastern Switzerland, where the risk potential is low. A large part of the economy could reopen there.
Are there any measures that have so far been neglected?
The measures should focus more on the individual risk profile. Risk groups must have stricter rules than other people. The idea of immunity testing should also be discussed more aggressively. Because if we issue official immunity certificates, we could discover a valuable pool of harmless people much faster and mobilize important workers right away. In this way, the health system and the economy could be supported without risk.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
The swift and non-bureaucratic guarantee of liquidity aid through commercial banks was important and correct. However, in the medium term, you cannot keep an economy running on state money. There is no way to avoid the rapid relaxation of stagnation, otherwise we will slide into the poor economy with state rationing. The federal government and cantons must resist the temptation to make A-fund-perdu contributions. Part of the risk must always be assumed by the company. State money must be used specifically where it can preserve long-term jobs.
How do you assess the proportionality of the measures decided by the Federal Council in the fight against the spread of Covid-19?
Jan-Egbert Sturm
The somewhat late social reaction, also due to lack of experience, for example from the Sars epidemic in 2003, has forced not only the Federal Council but also other European governments to order drastic closures and restrictions on mobility. This was the only way to prevent the pandemic from expanding exponentially. Given that at the same time measures have been initiated to preserve the structure of the Swiss economy, these strict measures make sense. They reduce the duration of the blockade and, therefore, the medium-term costs for the economy.
The measures were extended until April 26. What are the requirements to loosen?
The infection rate must be low enough. When the rate of reproduction of the virus drops below 1, that is, each infected person infects less than a new person, the virus gradually slows down. This would reduce the risk of hospitals reaching their capacity limits. Furthermore, we need sufficient testing capacity and we must ensure that sufficient resources are available to properly identify sources and contacts. This will minimize downtime after loosening.
What relief could you consider in a first step?
It is important that the economy can regain some speed again. The current state cannot be maintained for months without causing systemic problems. Stores and businesses should reopen as soon as possible. However, to avoid another wave of contagion, precautionary measures must be taken and social distancing must continue as far as possible. It is also essential that we can quickly identify and track new cases. For this we need a better database.
Are there any measures that have so far been neglected?
Reliable data is also essential for the post-crash phase. National but also international coordination is not only desirable but necessary. My impression is that there is still a lot of room for improvement. All Western countries need a technical solution, ideally an application that collects and exchanges information anonymously to fight the virus. There still does not seem to be much cooperation between institutions and countries in this area.
Where do you see a need for correction in the economic policy measures with which the Federal Council is trying to cushion the economic consequences of the crisis?
Many SMEs are threatened in their existence. Short-term work assignments and credit guarantees help and have been implemented very quickly. However, that will not be enough for many companies. More financial support is needed to avoid a wave of bankruptcies. We are in a “too many to fail” situation. In order to compensate the federal government for support measures, a crown surcharge on post-crisis income tax could be considered. This would demonstrate that the economy can act in solidarity.
