The COVID-19 Pandemic and the Economic Crisis

Abstract

We sketch possible linkages between features of the 2008-2009 financial crisis and outcomes of the 2020 COVID-19 pandemic. We start from three features of the financial crisis, i.e. (1) costly bank bailouts, (2) constrained SME credit, and (3) strict bank regulation. We then discuss their intermediate outcomes in terms of: (1) sovereign debt accumulation and possible cuts in public health spending, (2) the slowing of economic growth and labour mobility; and (3) bank zombie lending, to arrive at the COVID-19 pandemic severity in terms of infection and death rates and the difficulties in designing and implementing economic support policies.