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Our View: Pandemic has drastically changed conventional economic thinking

Former finance minister and current deputy leader of Disy Harris Georgiades

Almost everyone appears happy with the government’s new raft of measures aimed at assisting the restart of the economy after the two-month lockdown. The credit facilities that will open up for companies will be in the region of €1.7 billion – higher than the total envisaged by the government bill amended downwards by the political parties – and there will also be €100 million allocated for direct grants to companies.

In short, a more generous package is now in place, with the government using the assistance of the European Investment Bank (EIB) as well as an existing plan. There will be no need for the government to have these plans, apart from the direct grant budget, approved by the legislature, which means the opposition parties will not be able to cut and change anything, nor will they be able to impose the oversight of the auditor-general as had been their plan.

While more money will now be available to help the liquidity of businesses, the hold-up caused by the two-month stand-off at the legislature could prove costly to some businesses as well as delay the economy’ restart. It will be a few months before loan applications are processed and approved, in which time things could get more difficult for cash-strapped businesses, wanting to place orders and pay bills. At least they will now know that liquidity will be available.

Former finance minister and currently deputy leader of Disy, Harris Georgiades, said the government measures announced on Wednesday night “constitute the biggest state intervention since the establishment of the Republic.” If it happened at any other time, this intervention would have been great cause for concern, but all EU member-states are doing the same, guaranteeing loans, subsidising interest rates, supporting wages to help keep businesses afloat.

State intervention in the economy through subsidies and support schemes was a big no-no in the EU but now such actions are actively encouraged by the Commission which will be borrowing €750 billion on the markets for the Next Generation Project that hopes to kick-start the European economy. The pandemic and the havoc it has caused to economies has drastically changed conventional economic thinking. Nothing illustrated this better than Germany’s backing of the corona bond, which would involve the ECB borrowing money on behalf of member states; there is strong opposition to the idea from some countries.

The pandemic and the lockdown have caused great damage to economies. We can only hope that it is not irreparable and that big spending by the state, which was traditionally viewed with suspicion, can fix things.

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