The European Central Bank could provide bridge loans to companies if comercial lenders cut off credit, International Monetary Fund staff said in recommendations for weathering the coronavirus downturn.
Governments also should stand ready to ramp up support for employers if the economy deteriorates further, staffers said in a report to the IMF’s executive board, published Tuesday.
Governments need job retention plans, social safety nets and training programs to “make sure people are not left behind,†the report said. Support should still be targeted and temporary to “limit the cost to the taxpayer,†it added.
The report, part of the IMF’s annual audit of the eurozone economy, fleshes out staffers’ suggestion last month for so-called helicopter money, in which the ECB could bypass a stalled banking system to drop relief funds into the economy.
The recommendations come amid concerns that renewed COVID-19 containment measures could put companies out of businesses and hamper an economic recovery next year.
ECB officials have warned that defaults could triple the bad loans on banks’ balance sheets to almost €1.4 trillion, weighing down their lending capacity.
Should that happen, the ECB could “fully or partly finance a special purpose vehicle,†the IMF report said. This SPV would lend to companies that would be in good health if not for the pandemic.
Banks meanwhile should protect their capital by restricting dividend payouts and share buybacks until “the recovery is well underway,†the report said.
