How to prevent mass corporate bankruptcies?

Here is an overview of national measures to support businesses.

These schemes share the burden of #Covid19 losses with *national* taxpayers. No European backstop in sight, leaving a patchwork and uneven playing field!

A thread. 1/N What is there already?

1) Basically all countries have extended furlough or short-time work benefits. This supports both workers and firms.

Complementing this, some countries temporarily exempt employers from social security contributions (e.g., Slovak Republic, Spain).

2/N

#COVID19 Economic Crisis: Sharing the Burden in Europe

Plenty of liquidity is on its way. It’s time to think about the distribution of losses. In the spirit of solidarity and in the view of spillovers, burden sharing should not remain an entirely national matter.

A thread 1/12 National measures have been announced to change the allocation of losses across sectors:

Households ➡️ public, eg via social safety nets
Corporates ➡️ public, eg via loan guarantees and grants
Corporates & HH ➡️ banks, eg via mortgage moratoria

2/12

My analysis of 32 sovereign debt crises with J Schumacher @ECB has been published as @IMFnews working paper, comparing how bond investors fare in debt defaults over the long run.

What’ in it? THREAD 1/7

imf.org/en/Publication… Point-in-time analyses like Cruses & Trebesch (2013) find that investors incur massive losses in sovereign debt restructuring of 40% of NPV on average. Our longer view also incorporates risk premia earned before a crisis & the recovery rally afterwards. What do we find? 2/7