Meeting with Annick Steta

Since March 16, France is in a period of confinement. As we approach the scheduled decommissioning date and the return to “normal” life, the government as well as the French and world population is wondering what impact this health crisis will have on the economy.

To address this issue, CEDS interviewed a Doctor of Economic Sciences, a graduate of Sciences Po Paris and HEC Paris. Annick Steta is a researcher at the University of Lorraine and a member of the editorial board of the Revue des Deux Mondes. She was interviewed by Florence Gabay, Director of Development at CEDS.

1) In your opinion, does the slowdown in activity linked to the worldwide diffusion of Covid-19 mark the beginning of a lasting economic crisis?

I fear so, although it is obviously far too early to assess the economic consequences of this pandemic. The latter is not intrinsically responsible for the drop in activity observed in the countries concerned. It was the response to the pandemic that brought the economies to a standstill. In the regions of the world most heavily affected by the new coronavirus, most governments have put in place so-called containment measures. I prefer to speak about confinement, because it seems to me that this novlangue taken up endlessly by the media has something unbearable: it is indeed the public authorities which imposed to the individuals an unprecedented restriction of their liberties, at least in the Western democracies. Some foreign experiences, including those of Germany, the Netherlands and Sweden, show that other strategies were possible: mass testing in order to be able to identify the sick as quickly as possible, isolating them rather than locking up the whole population, better explaining the modes of transmission of the virus so that individuals can understand the precautions to be taken.

Countries that have chosen to limit population movements to the strict minimum have begun to pay the price of this confinement. The activity of the French economy has thus fallen by a third. Some sectors of activity are almost completely at a standstill: this is the case for restaurants, hotels, tourism, publishing, live entertainment, but also non-medical services to people. These sectors account for a large share of the gross domestic product (GDP). No one knows when they will be able to restart. It is likely that a return to the previous situation will not be possible as long as a vaccine against SARS-CoV-2 – the “official name” of the new coronavirus – has not been able to immunize, if not all, at least a very large part of the population. In the coming months, many industries will need to adopt measures to limit contact between individuals. For many businesses, these restrictions will result in a decrease in revenue that could jeopardize their existence. This is particularly obvious in the transport sector: running half-empty trains and planes means that the companies concerned are working at a loss.

Under these conditions, the recovery of economic activity should only be very gradual. I think it is unrealistic to expect consumption to pick up in mid-May. Restrictions on international transport will also affect exports. Finally, the difficulties experienced by most companies will inevitably weigh on investment.

2) What will be the social consequences of this economic crisis?

They will be very heavy. The majority of private sector employees currently benefit from state-funded short-time working schemes. These allow them to receive four fifths of their previous income. But not all of them have full-time jobs, and not all of them previously had a level of income to support themselves. The situation is even worse for precarious workers. What about all those who were working without being declared and who are therefore not eligible for short-time work?

The French economy’s entry into recession will result in numerous business failures. In the coming months, layoffs for economic reasons will multiply, mechanically increasing the unemployment insurance deficit. The decrease in purchasing power of unemployed individuals will weigh on consumption, which will contribute to the slowdown in activity.

3) How can the government respond effectively to such a situation?

The crisis we have entered is different from the great economic crises that marked the twentieth century. Unlike those of 1929 and 2007-2008, it did not originate in a failure of the financial system. Nor can it be usefully compared to the slowdown in activity produced by the two world wars or caused by the oil shocks of the 1970s. The public authorities must therefore devise an ex nihilistic response to a crisis that they themselves have triggered in order to protect the population.

As soon as the epidemic began to spread around the world, the monetary authorities injected massive amounts of liquidity into the markets so that the fall in activity would not be exacerbated by a lack of financing. Then the states entered the scene. For the time being, the measures they have adopted are marked by urgency: they have substituted themselves for the private sector by taking over part of the employees’ remuneration and by rescuing companies threatened with bankruptcy. The price of their intervention was a surge in public debt. How will it be financed? This is the challenge for the next few months. It is imperative to avoid a debt crisis amplifying the effects of the crisis in the real economy. It is often recalled that the public debts related to the world wars were wiped out fairly quickly. That’s right. But again, the situation was not comparable to the one we have today. After the two world wars, production and consumption recovered relatively quickly. In countries that have experienced significant destruction, the needs related to reconstruction have helped to revive activity. Moreover, the U.S. economy had not been brought to a standstill. Right now, the fate of the global economy depends on our ability to develop a vaccine and bring it to market quickly. We are engaged in a race of speed.

Updated 27 June 2022