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19.03.2020 7 EDITORIAL BusinessToday is published every Thursday. The newspaper is a MediaToday publication and is distributed to all leading stationers, business and financial institutions and banks. MANAGING EDITOR: SAVIOUR BALZAN EDITOR: PAUL COCKS CONTRIBUTING JOURNALIST: MASSIMO COSTA BusinessToday, MediaToday, Vjal ir-Rihan, San Gwann SGN9016, Malta Newsroom email: bt@mediatoday.com.mt Advertising: afarrugia@mediatoday.com.mt Telephone: 00356 21 382741 T here is no nice way of putting it: the coro- navirus pandemic will hurt global trade flows and it will hurt Malta, an open econ- omy. e island is hurting now with travel bans spanning from one end of the continent to the other. It will hurt further when supply-chain shocks will disturb the normality of global trade. As we are seeing in Malta, it is production, trade and investment that has first stopped with schools, businesses locked down in order to contain the epidemic. And if people cannot work and businesses cannot sell, then incomes and spending drops, and gives way to a demand shock. Worldwide, we are witnessing a disruption in financial markets and a drop in investor confi- dence, coupled with a significant oil price drop (a silver lining for oil-importing countries). European banks' profitability will surely be weaker than 2019, with pressure on net interest margins and net fee and commission income. As investment slows down, so will asset quali- ty deteriorate. e new capital requirements for banks give them a strong liquidity buffer – a les- son learnt from 2008 – but that does not mean that banks might not need to access funding from the ECB. News of lay-offs from companies who are de- pendent on foreign labour, with little capital investment, will also contribute to an exodus of income that was previously financing prop- erty investment in the form of rents, as well as concomitant business services supplied by small businesses. All these factors, in time, could lead to asset quality deterioration for banks apart from the social costs endured by savers and investors, es- pecially SMEs and the self-employed. It goes without saying that mortgage forbear- ance is a necessary measure to cushion the im- pact of contracted incomes on savers and prop- erty owner. is epidemic will be a challenge for Malta and the EU not just in terms of business, the impact on our health, our social lives, with isolation and fear of illness, but in terms of the political econ- omy itself. e coronavirus has deepened the crisis that began in 2008, by pushing us closer to the large recession that was lurking around the corner. And since the last crisis, with a massive injection of US dollar liquidity at near-zero interest rates used to simply stave off the crisis by refinanc- ing corporations and stabilising the financial markets, the world was depleted of the money for serious investment in good quality jobs, in health and education, or green energy. It is doubtful that the same US dollar swap- lines extended to Europe by the Federal Reserve in 2009, will happen again under a Trump ad- ministration. No doubt, this will indeed have tangible effects on people's lives in Europe. We are also witnessing the limits of Europe's soft power. On Monday, the finance ministers of the euro countries met via video conference, with the eurozone countries' reactions to Covid-19 on the agenda. Yet the ministers did not reach any agreement on new collective or coordinated measures, only accepting the initiatives by the European Commission, the EBA and the ECB, as well as the several measures at a national level. While the fiscal measures already adopted have been quantified at 1% of EU economic output, and liquidity support to 10% of economic out- put, other measures have been flexibility in the Stability Pact and exceptions to state aid rules. By simply endorsing the measures already adopted both at national and European level, the Eurogroup showed an inability to build a truly European response. What is needed is a decisive European response that protects businesses and jobs across the eurozone in equal measure. is means effective emergency assistance to busi- nesses, such as precautionary credit lines with- out the usual austerity conditions; companies should have quick access to emergency loans from the European Investment Bank or national development banks; and a climate-friendly stim- ulus package will have to be in place for real re- covery after the coronavirus crisis. It is clear that the Maltese government will not only have to flatten the 'health curve', but also the economic curve: central banks will have to provide emergency liquidity but it is govern- ment's discretionary targeted fiscal measures and broader programmes that will be crucial to support economic activity and save jobs, by keeping workers paid and employed so they can meet bills or have bills delayed or even written off. Big and small businesses will have to be funded to ride out the storm. Riding out the storm and saving jobs

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