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

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  • Boot, Arnoud W. A.
  • Carletti, Elena
  • Kotz, Hans-Helmut
  • Krahnen, Jan Pieter
  • Pelizzon, Loriana
  • Subrahmanyam, Marti G.

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. (...)

Suggested Citation

  • Boot, Arnoud W. A. & Carletti, Elena & Kotz, Hans-Helmut & Krahnen, Jan Pieter & Pelizzon, Loriana & Subrahmanyam, Marti G., 2020. "Corona and financial stability 2.0: Act jointly now, but also think about tomorrow," SAFE Policy Letters 79, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safepl:79
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    Cited by:

    1. Carletti, Elena & Claessens, Stijn & Fatás, Antonio & Vives, Xavier (ed.), 2020. "Barcelona Report 2 - The Bank Business Model in the Post-Covid-19 World," Vox eBooks, Centre for Economic Policy Research, number p329.

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    Keywords

    coronavirus; financial stability; systemic risk;
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