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March 25, 2020 "The loss of private sector income - and any debt taken to fill it - must be absorbed, in whole or in part, by public budgets. Higher public debt will become a feature of our economies and will be accompanied by debt cancellation private".Ex-ECB President Mario Draghi suggested the solution to revive the economy overwhelmed by the coronavirus in a long editorial for the Financial Times in which he stressed that "the correct role of the state is to use its budget to protect citizens and the economy against the shocks that the private sector is not responsible for and cannot absorb ".
Draghi points out that "states have already done so" on the occasion of other emergencies. The wars, for example, observes the former governor of the Bank of Italy, "were financed by an increase in public debt". During the First World War, in Italy and Germany, between 6 and 15% of expenses in real terms were covered by taxation "And today, Draghi notes, it is a question of fighting against the coronavirus and its consequences in human terms and cheap.
According to Draghi, "the key question is not whether but how the state can effectively use its budget. The priority", he adds, "must not only be to provide basic income for those who have lost their jobs. First of all we have to prevent people from losing their jobs. If we don't we will get out of this crisis with a permanently lower rate and production capacity ". To protect them, presses the former Eurotower number one, "an immediate injection of liquidity is needed", which is "essential for companies to cover operating expenses during the crisis, whether they are large, small or medium-sized enterprises or self-employed".
Draghi promotes the measures taken so far but calls for "a more comprehensive approach". The only way to avoid the crash of the entire economy, he warns, "is to fully mobilize the entire financial system: the bond market, especially for large companies, the banking system and in some countries even the postal market". And this, he insists, "must be done immediately, avoiding bureaucratic delays". Banks, for example, should lend money at no cost to businesses willing to save jobs. In this way, he explains, "they would become" public policy tools "and" the capital they need to perform this task must be provided by the government in the form of state guarantees ".
According to Draghi, "a deep recession is inevitable. The challenge", he says, "is how to act with sufficient force and speed so that it does not turn into a prolonged depression, deepened by a plethora of failures that would leave damage irreversible. " Faced with a war, all that remains is a common mobilization. And "as Europeans", concludes Draghi, we are called "to support each other for what is clearly a common cause".