Effective economic policies are urgently required to deal with the enormous strain that the global epidemic is putting on all of the European Union (EU) economies.  Right away, a key dimension in which the EU can help is in overcoming the liquidity shortages for firms that are facing a temporary yet dramatic drop in their revenues. This is essential if they are to keep on:

  1. Paying wages to their employees. Firing them would cause great suffering for some that are unable to meet basic needs, trigger a drop in household consumption, and lead to defaults on fixed commitments, such as rents or school fees. It would require new re-matching of workers and jobs in the near future, a costly and slow process that would lead to great losses in productivity and prolonged unemployment.
  2. Repaying their other debt obligations. These include both trade credit from suppliers and short-term loans from banks and other financial institutions. Without them, default would cascade through firms and economic sectors and across borders. Banks would fail and financial systems would be in turmoil for many years to follow.

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