Analysis & Opinions

This Week in COVID-19 and Economic Diplomacy: ‘GOP Unveils Pandemic Response Plan’

| July 30, 2020

Our weekly COVID-19 and Economic Diplomacy tracker looks at policies that impact the coordination of international governments and central banks, ongoing commentary and analysis, and asks what these turbulent times mean for economic diplomacy. 

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The Highlights

  • Formal negotiations over U.S. coronavirus response legislation began this week. The proposed $1T GOP plan slashes unemployment benefits from $600 to $200 per week, another round of $1,200 stimulus checks, and $100B for the small business PPP. There are reports that the bill may also include language to alter leverage ratio calculations to allow firms to load up on riskier assets. 
  • The ECB announced a continued freeze on dividend payments until January. Europe’s economy continues to recover as Germany’s economic recovery drives hopes that the country will bring the eurozone out of the recession. 
  • The IMF granted South Africa $4.3B the single biggest allocation of emergency financing from the IMF yet for a pandemic-hit country. Latin America’s struggle to respond to the pandemic may be linked to weak state capacity more than any other factor.

Global Developments

U.S. Developments

As the benefits in the CARES Act expire at the end of this month, Congressional leaders struggle to reach a bipartisan coronavirus relief bill.

European Developments

Due to its overall successful public health response to the pandemic, the European economy shows signs of slowly recovering.

  • The ECB called on lenders to continue to freeze dividend payments until at least January. The institution also urged banks to set “extremely moderate” staff bonuses. The central bank’s recommendations are designated to help banks absorb losses and support lending. Bank shareholders are frustrated by the announcement stating that while the continued freeze was expected, they have yet to get clarity on metrics or benchmarks needed for distributions to start. Initially, the ECB ordered banks to halt dividend payments in March until at least October. 
  • Almost 1.2M British businesses have borrowed more than £50B. Most of the loans were lent through the “bounce back” scheme which allows very small companies to borrow up to £50,000 with minimal assurances on their ability to repay. The Office for Budget Responsibility estimates that up to 40 percent of businesses could default. The Treasury has lent more than £500m via its Future Fund scheme to start-ups.
  • Confidence in Germany’s business climate exceeded expectations. The monthly business climate index showed a reading of 90.5 in July compared to the 86.2 in June. The rise was driven by businesses’ assessment of current conditions, expectations for the future, and the recovery of the service sector. The survey raised hopes that Germany could pull Europe out of the recession. However, optimism among German companies has not yet climbed to pre-pandemic levels. Germany’s overall recovery tracks with the continent’s larger recovery which is gathering pace as reflected in a set of business surveys. 

Emerging Markets

Odds and Ends

  • Emma Ockerman reports on the eviction crisis and its disproportionate impact on Black and Latinx communities. More than 12.5 million renters reported they were unable to make their most recent payment and nearly 24 million people have little to no confidence in their ability to pay next month’s rent. Approximately 56% of these renters are Black or Latinx. The CARES Act eviction protection program for tenants in federally backed properties expired last week. 
  • Gabriel Sanchez, Edward Vargas, and Adrián Pedroza write for Brookings on how Covid-19 is having a devastating impact on the economic well-being of Latino families. In a survey conducted by the article’s authors, 29% of Latino families have had someone in their household lose their job and 33% of Latino parents/primary caregivers have experienced significant business losses with 41% of families having trouble paying for rent or their mortgage. 
  • The pandemic is worsening educational inequality as school goes online. In the United States, the Department of Education estimates that 1 in 8 children do not have internet access via a desktop or laptop at home. Even students who do have internet access are likely to fall behind. Moreover, once in-class instruction resumes, a survey by British think tank Institute for Fiscal Studies found that poorer parents were less inclined than rich ones to send their children back to school at the earliest opportunity.
  • As more people shop online or pay with contactless cards or phones during the pandemic, the idea of central-bank digital currency (CBDC) is gaining traction. Roughly 80% of central banks are doing some kind of CBDC work as China tests the digital yuan and Sweden is close to testing its e-krona. The Economist states that the push towards CBDC is motivated by defending against risks, such as the failure of online payment systems and the migration of digital payments to private networks offered by Facebook, Tencent, and other big tech firms. 
  • The Financial Timesinterviewed global experts on the impact of the pandemic. Those interviewed include Bill Gates, David Miliband, Phumzile Mlambo-Ngcuka, and Kristalina Georgieva.
For more information on this publication: Belfer Communications Office
For Academic Citation: Suh, Hannah.“This Week in COVID-19 and Economic Diplomacy: ‘GOP Unveils Pandemic Response Plan’.” , July 30, 2020.

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