Coronavirus: Patrick Honohan urges radical action on EU, ECB

Former Irish Central Bank chief in charge during financial crisis says ‘no excuse’ for delay

Prof Patrick Honohan:  ‘The timidity and suspicion that characterised too much of policy during the euro-area crisis must be avoided this time.’Photograph: James Forde/The Irish Times

Prof Patrick Honohan: ‘The timidity and suspicion that characterised too much of policy during the euro-area crisis must be avoided this time.’Photograph: James Forde/The Irish Times

 

EU governments and the ECB need to bring the “full financial power of Europe” into play to combat the coronavirus crisis and must not repeat the mistakes made during the financial crisis, according to former Irish Central Bank governor Patrick Honohan.

In an opinion article in Wednesday’s Irish Times, he says a massive effort is needed to support businesses and individuals hit by the crisis.

As part of the move to restore confidence, it is vital that the ECB moves aggressively into the markets to stop any pressure on the euro zone, he says, noting that the cost of borrowing for Italy has risen due to fears about the economic costs of the crisis.

“It is a moment for rapid, strong and all-embracing official policy to ensure that the economic side-effects of the pandemic are contained and equitably shared,” he writes .

The delay in acting during the euro-zone crisis led to a huge economic cost, according to Prof Honohan,who was Irish Central Bank governor from 2009 to 2015, and there would be “no excuse” for repeating these errors.

Europe has the capacity to do this; but in order to be successful, the timidity and suspicion that characterised too much of policy during the euro-area crisis must be avoided this time.”

Prof Honohan’s article comes as governments of the major economies step up efforts to combat the crisis, with promises of a massive US stimulus, which may include cash paid directly to households, leading to a rebound in US markets on Tuesday evening.

Governments are also moving to support businesses hit by the crisis and their employees with huge programmes of assistance.

The Irish Government announced a €3 billion spending programme last week and is dealing with a wave of lay-offs from the pub, tourism and retail sector with a special scheme offering those affected quick financial support.

On Wednesday, Minister for Finance Paschal Donohoe will hold a meeting with bank chief executives on how the industry is responding to the fallout from the Covid-19 crisis and an expected surge in bad loans as many businesses go under and homeowners fall behind on mortgage payments.

What are the banks saying?

The Government is likely to press the banks to offer significant concessions to small businesses on outstanding loans. Already, the Revenue Commissioners have said it is effectively willing to defer VAT payments for SMEs for a period. The banks are expected to discuss how the financial sector can also step in and help companies hit with a collapse in cash flow.

Banking sources say there has been a surge in calls from homeowners and small companies in recent days seeking payment holiday periods, amid estimates that 340,000 bar, restaurant and retail workers will have lost their jobs within days by the end of this week.

Mr Donohoe will be updated on measures taken by lenders in the past week to offer loan payment breaks for households and businesses affected by the crisis – with accrued interest added to the loan principals – as well as emergency working capital and trade finance lines, according to banking sources.

Banks will also questioned on how they will be able to make it easy for struggling businesses to secure overdrafts and short-term loans to make initial payments to workers that have lost their jobs under an emergency scheme, where money paid out will ultimately be refundable by the Government.