A new policy toolkit is needed as countries exit COVID-19 lockdowns

Most governments have taken measures to protect vulnerable workers and firms from the worst effects of the sudden drop in activity related to COVID-19

Publishing date: 22 June 2020
Authors: Jean Pisani-Ferry Thomas Philippon Olivier Blanchard

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When it became clear that the COVID-19 pandemic required widespread lockdown of all but essential firms, most governments took measures to protect vulnerable workers and firms from the worst effects of the sudden drop in activity. These measures included unemployment benefits, grants, transfers, loans at low rates and tax deferrals. Their nearly exclusive focus was protection. As lockdowns are lifted, as some of these measures come to an end, and as it becomes clear that some sectors will have to contract and others expand, the focus must progressively shift. As usual in the aftermath of a major shock, protection must be balanced with reallocation, taking into account changing prospects for sectors and firms. Incentives must be given to firms and workers to resume activity, and, when needed, to adjust. Debt inherited from the freeze must be restructured if unsustainable. But policymakers must also consider the consequences of heightened uncertainty about the course of the pandemic and the economy, and the large increase in the number of workers out of work.

In other words, as governments in advanced economies move from freeze to exit, they must design measures that will limit the pain of adjustment. This Policy Contribution explores how such measures can be designed.

Section 1 briefly describes the measures that were taken to accompany the lockdown, in particular in Europe and the United States. Section 2 presents the protection and reallocation architecture that should underlie the new measures, namely a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and a process-light restructuring of legacy debts. Section 3 concludes.

Recommended citation

Blanchard, O., T. Philippon and J. Pisani-Ferry (2020) 'A new policy toolkit is needed as

countries exit COVID-19 lockdowns' Policy Contribution 12/2020, Bruegel

About the authors

Jean Pisani-Ferry

Jean Pisani-Ferry is a Senior Fellow at Bruegel, the European think tank, and a Non-Resident Senior Fellow at the Peterson Institute (Washington DC). He is also a professor of economics with Sciences Po (Paris).

He sits on the supervisory board of the French Caisse des Dépôts and serves as non-executive chair of I4CE, the French institute for climate economics.

Pisani-Ferry served from 2013 to 2016 as Commissioner-General of France Stratégie, the ideas lab of the French government. In 2017, he contributed to Emmanuel Macron’s presidential bid as the Director of programme and ideas of his campaign. He was from 2005 to 2013 the Founding Director of Bruegel, the Brussels-based economic think tank that he had contributed to create. Beforehand, he was Executive President of the French PM’s Council of Economic Analysis (2001-2002), Senior Economic Adviser to the French Minister of Finance (1997-2000), and Director of CEPII, the French institute for international economics (1992-1997).

Pisani-Ferry has taught at University Paris-Dauphine, École Polytechnique, École Centrale and the Free University of Brussels. His publications include numerous books and articles on economic policy and European policy issues. He has also been an active contributor to public debates with regular columns in Le Monde and for Project Syndicate.
Thomas Philippon

Thomas Philippon is Professor of Finance at New York University, Stern School of Business. Philippon was named one of the “top 25 economists under 45” by the IMF in 2014. He also won the 2013 Bernácer Prize for Best European Economist under 40, the 2010 Michael Brennan & BlackRock Award, the 2009 Prize for Best Young French Economist, and the 2008 Brattle Prize for the best paper in Corporate Finance. He was elected Global Economic Fellow in 2009 by the Kiel Institute for the World Economy.

Philippon has studied various topics in macroeconomics and finance: systemic risk, crisis resolution mechanisms, the dynamics of corporate investment and household debt, and the size of the finance industry. His recent work has focused on the Eurozone crisis and on financial regulation. He currently serves on the Monetary Policy Advisory Panel of the Federal Reserve Bank of New York, and as a board member and director of the scientific committee of ACPR, the French prudential regulator of banks and insurance companies. From 2012 to 2013, he was the Senior Economic Advisor to the French Finance Minister.

Philippon graduated from Ecole Polytechnique, received a PhD in Economics from MIT, and joined New York University in 2003.
Olivier Blanchard

Olivier Blanchard is the Robert M. Solow Professor of Economics emeritus at MIT. He joined the Peterson Institute for International Economics as the first C. Fred Bergsten Senior Fellow since 2015. A citizen of France, Blanchard has spent most of his professional life in Cambridge, MA. After obtaining his PhD in economics from the Massachusetts Institute of Technology (MIT) in 1977, he taught at Harvard University, and returned to MIT in 1982. He was chair of the economics department from 1998 to 2003. In 2008, he took a leave of absence to be the economic counselor and director of the Research Department at the International Monetary Fund.