Thorsten Beck, Elena Carletti, Brunella Bruno, 17 March 2021

The combined effect of the measures implemented to maintain banks’ ability to provide funds during the Covid crisis was to create a virtuous circle between corporates, banks, and sovereigns, avoiding a funding crunch for either and keeping risk premiums at deflated levels. However, it also created the basis for possible increased systemic risk in the future. This column argues that the exit strategy from the various support measures must be carefully designed and coordinated, as well as communicated in a clear and timely manner.

Mathieu Cros, Anne Epaulard, Philippe Martin, 04 March 2021

Concerns have emerged that public support to firms in the COVID-19 crisis has been too generous, reducing exit of unproductive firms and preventing Schumpeterian creative destruction. Using data on French firm failures in 2020, this column suggests that these concerns are, at this stage, unwarranted. Although the number of firms filing for bankruptcy was well below its normal level, the same factors that predicted firm failures in 2019 – primarily low productivity and debt – were at work in a similar way in 2020. Overall, the findings point to hibernation rather than zombification.

Alexander Hodbod, Cars Hommes, Stefanie J. Huber, Isabelle Salle, 21 December 2020

The profound and protracted experience of the COVID-19 crisis may fundamentally change consumer preferences. This column reveals how a representative consumer survey in five EU countries indicates that many consumers do not miss certain goods and services they have cut down on since the COVID-19 outbreak. It concludes that fiscal policy must recognise that some firms will become obsolete in the altered post-COVID-19 environment. To achieve a swift recovery, these obsolete firms must be allowed to fail fast so that resources can be reallocated to more efficient uses. 

Luc Laeven, Glenn Schepens, Isabel Schnabel, 11 October 2020

Large-scale government and central bank interventions in the context of the COVID-19 crisis have reinvigorated the debate on the threat of a zombification of the economy if unviable firms are kept alive. This column surveys the existing literature and argues that the COVID-19 crisis is very different from previous experience. It proposes a number of policy actions that can prevent a zombification of the economy.

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