NIRA OPINION PAPER
No.46 | May 2020

NIRA OPINION PAPER
No.46 | May 2020

Coping with the Economic Consequencesof the COVID-19 Pandemic- The need for international coordination and cooperation Professor, Solvay Brussels School of Economics & Management,
Senior Fellow, Bruegel✳
Franz Waldenberger Director, German Institute for Japanese Studies (DIJ)
Glen S. Fukushima
Senior Fellow, Center for American Progress
Hubertus Bardt
Managing Director/Head of Research, the German Economic
Institute✳
Noriyuki Yanagawa Executive Vice-President, the Nippon Institute for Research
Advancement (NIRA) / Professor, Graduate School of
Economics and Faculty of Economics, The University of Tokyo
Vice Dean of Social Sciences Faculty and Professor of School of
Shujie Yao
Economics and Business Administration, Chongqing University/
Chief Expert, Chongqing Municipal Government
Professor, Chalmers University of Technology, Sweden
Tomas Kåberger
Chair of Executive Board, Renewable Energy InstituteAndré Sapir

Moderator✳

The present crisis is surrounded by a high degree of uncertainty. We cannot
eliminate the uncertainty, but we can fathom possible scenarios. Therefore, NIRA
(Nippon Institute for Research Advancement) and DIJ (German Institute for JapaneseStudies) decided to jointly hold a policy discussion on COVID-19 with experts fromseveral major regions across the world.
The international conference was held online on April 23 and was attended byexperts from China, the US, Germany, Sweden and the EU, as well as participants fromJapan. The main purpose of our web-meeting was not to recount the publicly available
information we already shared, but to exchange opinions about the economic impacts ofthe pandemic and the various national countermeasures based on the participants’assessments.
At the conference, various issues were discussed: the need for international
coordination and cooperation; the economic impact of the COVID-19 crisis and national
economic countermeasures; the impact of the crisis on global energy markets; social andregional disparities; and the role of scientific expertise.
The present pandemic presents a challenge to humankind. To cope with its global
dimensions and implications requires intense and continuous international dialogue,
not only for coordination and cooperation, but also for mutual understanding andlearning.
Editor: Chiharu Hagi (NIRA), Jonathan Webb

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NIRA OPINION PAPER
No.46 | May 2020

Introduction
Franz Waldenberger

Director, German Institute for Japanese Studies (DIJ)

Noriyuki Yanagawa

Executive Vice-President, the Nippon Institute for Research Advancement (NIRA) /Professor, Graduate School of Economics and Faculty of Economics, The University ofTokyo
While the COVID-19 pandemic seems to have been contained in some countries, it
continues to ravage others. Death tolls differ greatly across regions reflecting – besides severe
statistical inaccuracies – differences in the level of preparedness, the timing and effectivenessof emergency measures, the capacities of the health sector, socio-geographic conditions, aswell as pure luck. There is still great uncertainty about when the pandemic will be contained
globally, including fears of a 2nd or 3rd wave and when medicines and vaccines will be available.
What seems quite certain already, however, is that the responses to the crisis, especially thetravel bans, the lockdowns of cities, and the interruption of supply chains have created atremendous shock to our economies and are likely to cause a downturn deeper than the world
financial crisis in 2008/2009. Despite the huge differences in death tolls caused by the virus,
the economic impact will be quite similar across countries due to the high degree ofinterdependence among national economies. It follows that no matter at what time and how
bad the actual pandemic has hit our countries, overcoming the ensuing economic crisis canonly be achieved jointly.
The need for international coordination and cooperation was strongly emphasized in
an international online conference with experts from China, the US, Germany, Sweden, theEU and Japan conducted on April 23. The discussion focused on the economic impact of the
COVID-19 crisis and national economic countermeasures. The following pages introduce theexperts and summarize their respective statements. The reports show that governments arelaunching economic relief and support schemes of historic dimensions to stabilize employment
and income and to ensure liquidity. There still remain many questions as to whether the vast
funds committed will be sufficient, how their deployment can be monitored, and whether they
will reach those in need in time. It was also stressed, however, that national policies alone
will not be successful unless they are supplemented by international coordination andcooperation in order to address these uncertainties and to deal with possible future decline ofglobal demand. Moreover, international coordination may include special support measures
for those countries with less capacity to act due to, for example, weaker fiscal conditions at
the outset.
Among the other themes addressed during the conference was the impact of the crisis
on global energy markets as seen by the collapse of oil prices. In addition, there were concernsthat the pandemic may widen existing income inequalities as well as social and regional
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NIRA OPINION PAPER
No.46 | May 2020
disparities. Another aspect was the relationship between scientific expertise, party politics,
and economic interests in national approaches to the crisis, as well as the question to what
extent the provision of comprehensive information and credible risk communication can
substitute for restrictive regulations.
The present pandemic presents a challenge to humankind. To cope with its global
dimensions and implications requires intense and continuous international dialogue, not only
for coordination and cooperation, but also for mutual understanding and learning. We verymuch hope that the insights collected in the following pages will be effective in contributing
to this end.

Franz Waldenberger
Dr. Franz Waldenberger is the Director of the German Institute forJapanese Studies (DIJ). He has held his present position with the DIJ since
taking a leave of absence from his position in Munich in 2014. He holds a
PhD in Economics from the University of Cologne. He specializes in the
study of the Japanese economy and corporate governance, conducting
comparative research on Japanese and German economic and financial
systems and corporate governance.

Noriyuki Yanagawa
Dr. Noriyuki Yanagawa is an executive vice president at the Nippon Institutefor Research Advancement. He is also a professor at the Graduate School of
Economics, at the University of Tokyo where he received his PhD in
Economics in 1993. His research specializations are contract theory andfinancial contracts. He has served as a member of Japan’s Council on
Economic and Fiscal Policy, and participated in various other initiatives of theJapanese government.
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NIRA OPINION PAPER
No.46 | May 2020

China’s Recovery and Avoidance of a Second Waveof COVID-19 Ultimately Depend on Bringing
Down Infection and Mortality Rates Worldwide
Shujie Yao
Vice Dean of Social Sciences Faculty and Professor of School of Economics and Business
Administration, Chongqing University / Chief Expert, Chongqing Municipal Government
China is currently coping with a double challenge in responding to the COVID-19
pandemic: preventing a second wave domestically, while resuming economic normality. In
order to achieve both, global cooperation is a necessity.
In China, COVID-19 cases were first found at the end of December 2019 in Wuhan,
the capital city of Hubei province. The number of infected cases rose rapidly in the latter halfof January 2020. Wuhan was locked down for 76 days from January 23 to April 8, 2020 after
human-to-human transmission of the virus was confirmed. Between January 24 and January
28, 2020, provinces throughout the country began imposing the “first class” anti-epidemic
control measures that placed 1.4 billion people under quarantine, with all but essential
workers staying at home for between 50-60 days. By the end of February, the situation was
brought more or less under control. Now, less than 1,000 people are currently hospitalized in
China with the disease, and the total number of cases peaked at about 84,000 and deaths at
about 4,600, if one includes Hong Kong, Macau, and Taiwan. Without the strict and rapid
imposition of quarantine, these figures would likely have been much larger.
While the measures were very effective, the Chinese economy suffered massively due
to the shutdown across the country. The country hasn’t seen negative growth rates for many
years since before 1978. The economy has gradually returned to normality since mid-February.
However, as the disease is now spreading widely and rapidly in Europe, the US, and otherparts of the world, international trade and flights have stopped, which affected the economy
severely. In the first quarter of 2020, China’s GDP plunged by 6.8% while Hubei’s GDP
contracted by 39.2%. This in and of itself does not equate to an economic collapse and is infact not as bad a result as it could be. However, it did involve a sharp contraction in some
activities. Car sales shrank by 42%, and international trade by 8.4%. The government budget
declined by almost 10%. Despite the country’s efforts, I wouldn’t say that it has fully recovered
as many sectors are still suffering.
Recognizing the essential link between the domestic and global economy, theChinese government is working hard to ensure economic recovery both at home and abroad.
The government is focusing on maintaining international supply chains, especially for
medical goods and services that are in high demand internationally. In March and April 2020,
China exported 71.2 billion yuan worth of medical goods, with the daily amount of exports
rising from 1 billion yuan in early April to 3 billion yuan by the end of April. Various measures
are also being taken to minimize the damage on foreign trade and cross-border FDI. In order4
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NIRA OPINION PAPER
No.46 | May 2020
to stimulate domestic economic activity, the government is implementing a variety of fiscal
policies such as reducing interest rates and providing more credits (re-credits) for small- andmedium-sized enterprises. The government has also strongly indicated its intent to support
job security in rural areas, and among those in the lower income brackets. This has beenchallenging, however, with just over 2 million jobs created in the first quarter of the year, adrop of nearly 1 million compared to the same quarter in 2019. Nonetheless, the government
is committed to eradicating the so-called “abject poverty” in China, defined as Purchasing
Power Parity of around 1.9 US dollars per person per day, by the end of this year. Even amidst
a pandemic, the need to lift people out of poverty is a social, economic, and political goal thatthe government is committed to achieving. Support includes material aid, basic schooling,
health care, and decent housing. This should help protect the most vulnerable group from thepandemic and assist in preventing a second wave of the disease.
Around the world, there seems to be great interest in whether China can fully recovereconomically. My answer would be no. If China can achieve 1-2% growth in the second quarter
it would be quite good. While it is hoped that the economy will pick up in the third and fourth
quarters of the year, this really depends on the environment outside China. If Europe and the
US can contain the disease within this quarter, the Chinese economy may fully recover in thesecond half of the year and will be able to achieve a 2-3% GDP growth rate for the whole year.
My concern is that it may take a long time to resolve the pandemic, as different
countries are facing different situations. This is concerning for China because in contrast to
countries like Sweden where a larger portion of the population was exposed and may havedeveloped some immunity, many people in China were not exposed. Were a second wave ofthe disease to occur, China could be subject to a more severe shock. To prevent this fromhappening, China continues to impose a variety of strict preventive measures as the economy
gradually returns to normality. China’s recovery is ultimately dependent on bringing down
the infection and mortality rates in the rest of the world, especially in countries that are notparticipating in our discussion today like India, Russia, Brazil, and some countries in Africa.
If those countries come to experience what the US and Europe are going through, there will
be a third wave that we have to be prepared for and nobody knows what the consequences
will be.

Dr. Shujie Yao is an expert on economic development currently working as
the vice dean at the Social Sciences Faculty of Chongqing University. He is
also a guest chair professor of the Nottingham University, Ningbo, China.
He completed his PhD in Economics at the University of Manchester in 1989.
His research interests include Quantitative Methods and Applied
Econometrics, Income Distribution, and Poverty and Economic
Development in China.
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NIRA OPINION PAPER
No.46 | May 2020

The United States Faces Its Worst Crisis Since
World War II in COVID-19
Glen S. Fukushima
Senior Fellow, Center for American Progress
The United States has been devasted by the COVID-19 pandemic, with more than amillion confirmed cases, over 60,000 dead (more than in the Vietnam War), and tens of
thousands of new infections every day at the time of this publication. Mandatory lockdowns
have been imposed in a majority of states, largely curtailing social and economic activity witha predictably devastating impact on the economy.
The scope of the economic dislocation is massive, with over 30 million individual
filings for unemployment in just six weeks. At the time of publication, the US Congress has
passed four bills to counteract the negative impact of the virus for a total of roughly threetrillion US dollars in relief. Despite the unprecedented scale of these federal stimulus
packages, the situation remains precarious, with many state governments risking bankruptcy
in their efforts to counteract the economic damage caused by COVID-19. Overall the outlook
is grim, and this is compounded by the fear expressed by some public health experts that an
initial recovery could be reversed if the onset of the influenza season in the fall coincides witha resurgence of COVID-19. While some private sector actors, such as the Gates Foundation,
are offering assistance, the scale of the problem is so huge that further support from thefederal government will be necessary.
Due to the massive nature of the stimulus packages, there will be ongoing scrutiny
regarding their adequacy, scope, coverage, beneficiaries, and eligibility requirements.
Harvard University, for example, announced that it would not be accepting $8.7 million
allocated to it through one of the education assistance programs after questions were raised
whether the funds were going to those institutions most in need. There is also concern about
the timing of disbursements, as well as appropriate monitoring to ensure accountability for
how the money is spent, on which there are continuing tensions between the White Houseand Democrats in Congress.
Furthermore, there is an intense debate in the US about the proper time to reopenfor business. Republican governors in such states as Georgia and South Carolina have been
most resistant to lockdown measures, and Democratic governors in such states as Michigan
have faced protesters, encouraged by President Trump, who are clamoring for a return tobusiness as usual. On March 24, the President stated his desire for the country to be “openedup” by Easter (April 12), but this had to be abandoned as unrealistic given the continuing
increase of infected cases and deaths.
The pandemic has exacerbated the nation’s divisions regarding region, race,
education, income, and wealth, with infection and mortality rates disproportionately hitting
the disadvantaged. Even as the epidemic ravages the country, the proper role of government
in the economy continues to be debated between Democrats and Republicans, with the former
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NIRA OPINION PAPER
No.46 | May 2020advocating a larger role (as in the New Deal era under President Franklin Delano Roosevelt)
and the latter deeply skeptical of government’s role.
Both Democrats and Republicans are highly conscious of this year’s presidential
election, set for November 3. The voters’ evaluation of the Trump Administration’s responseto the pandemic will affect not only who wins the presidency, but also who controls the Senate,
the House of Representatives, and state and local legislatures around the country. Democrats
have been critical of Trump’s response, while Republicans have been supportive, and much
will depend on how Independent voters assess the situation.
The crisis has raised questions about the global role of the US, among them: (1) its
role in preventing and managing future pandemics; (2) its support for the WHO, which
President Trump has criticized and from which he has threatened the withdrawal of US
funding; (3) its relationship with China; and (4) whether the G7 and G20 are adequate forums
for dealing with the economic effect of pandemics. Although it is only natural for the US toevaluate its international commitments against its domestic priorities, “America First” hasbecome “America alone,” with all its limitations. COVID-19, as with any other global
challenge, requires that the US work effectively with other countries and international
institutions, including the WHO. The US also needs to put science, facts, truth, andtransparency above politics. If the election on November 3 results in a Democratic
Administration, we are likely to see a profoundly different US approach to dealing with thecurrent pandemic as well as future pandemics.
At this point, no one can predict the eventual outcome for the US of this pandemic.
If it peaks by June or July with a return to semi-normalcy by late July or August, perhaps
things will stabilize by the time of the November 3 election. But if the pandemic continues toworsen or resurges in the fall in conjunction with an influenza epidemic, as some havepredicted, this could create a much more difficult situation than what we've seen so far. In
conclusion, the outlook for the US is uncertain. In the short term, it depends on how the
pandemic develops and the Trump Administration’s response. In the longer term, it depends
on whether there is a new administration that takes office on January 20, 2021, in which casethe world can expect a more proactive US response based on science and global cooperation
than what we have seen so far.

Glen S. Fukushima is a Senior Fellow at the Center for American Progress
in Washington, DC, where his work focuses on US-East Asian relations. In
the 1980s, he served as a senior official at the Office of the US Trade
Representative (USTR), and in the 1990s, he served as President of theAmerican Chamber of Commerce in Japan. He was a senior businessexecutive in Asia for 22 years and is a member of the Council on Foreign
Relations, on the Global Council of the Asia Society, and a Trustee of theJapan Association of Corporate Executives. He was educated at Stanford,
Harvard, Keio University and the University of Tokyo.
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NIRA OPINION PAPER
No.46 | May 2020

Coordination Throughout Europe is a Key for
Germany’s Economic Recovery
Hubertus Bardt
Managing Director/Head of Research, the German Economic Institute
In Germany, lockdown measures have been in place to cope with COVID-19 since
mid-March in combination with other measures such as expanding medical capacity – inparticular, significantly increasing the number of intensive care units and beds. We haveseen the effects of these measures in the decline in the number of active cases by a third asof early April, as well as in the fact that the increased capacity of intensive care units
remains unused.
Several businesses like hotels, event spaces, and restaurants have been closed andwill be closed for weeks or months. This will bring many of them close to bankruptcy. Within
the manufacturing sector, COVID-19 has had its most severe impact in the automotive
industry. Demand is down and international value chains will have to be restarted. This ishappening while the automotive industry is in the midst of a major structural change,
seeking to shift to electric mobility. They need every resource available to invest in newtechnologies and help accelerate this structural change. Thus, the present crisis is a heavy
blow with potential long-term effects. Other industries are also impacted by the decrease indemand from the car manufacturers as well. Moreover, the machinery industry could suffer
negative consequences on the demand side if emerging countries, where they export muchof their products to, face longer periods of slower growth. This is in addition to the damage
done to the complex inter-European (and international) value chains, as important
suppliers in Northern Italy and Spain have been taken offline.
All that said, from a medical perspective, the situation is not that bad, and in aneffort to ensure it remains so, we are not yet discussing a quick reopening. Our ability to
reduce restrictions must be used to limit economic damage. So far, the number of
unemployed has not changed much in the short term due to Germany’s “short-time work”
program; companies can reduce the working hours of employees and the labor agencies
cover a large portion of the income loss. Workers therefore will be able to get back to work
once it is safe enough. So far, about 750,000 companies have applied for this program, whichmeans that millions of people are currently engaged in “short-time work.” This method wasvery successful in the last crisis 10 years ago. Additionally, the government also supports
companies by providing liquidity such as loans and postponement of tax payments and iscurrently discussing the possibility of non-refundable subsidies.
In an optimistic scenario, we see at least a 5% drop in GDP due to the COVID-19
crisis. However, it will depend on how and when we are able to reopen the economy, and8
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No.46 | May 2020
ease or lift the lockdown. If GDP falls by more than 5%, then it seems difficult to achieve
the 2019 level of economic activity by 2021, and it will probably take until early 2022 forthe economy to return to the pre-crisis level. Due to fiscal policies taken in the past, thecountry is in a pretty good fiscal situation with a debt-to-GDP ratio of 60%. Even if it
increases by 10-15%, it will not be a significant problem for Germany as long as we canachieve a slow and careful way out of the lockdown situation.
That said, while short-term consumption is likely to recover quite quickly, durable
goods could suffer from a lack of demand if people postpone consumption due to a lack ofconfidence in the prospect of their future income as a result of insecurity or unemployment.
Consumer confidence in Germany is reportedly at a very low level, and it is unclear whether
and when it will bounce back. Therefore, we have started to discuss additional stimulus
packages such as a growth policy, supply-side reform, as well as tax breaks, which will beneeded once the lockdown ends.
The real problem for the German economy’s recovery is that international demand
will likely grow much slower than in the past. As Germany is an export-oriented economy,
it depends on global demand, which isn’t something Germany can stimulate on its own.
Additionally, the supply chain of German industries, notably suppliers from Northern Italy,
need to be rebuilt when Germany gets back on track. Even if it is controversial within
Germany and the EU, I think we need some kind of jointly organized financial assistanceto bring the important European regions back on track. Confronting the uncertainty caused
by COVID-19, many EU member states are making their own decisions to tackle the virus,
with inadequate consideration given to sustained cooperation to find a better and wider
solution for Europe as a whole. As a result of the pandemic, we now have new rules andhabits, and we are learning to live with a new kind of risk. Yet we must rekindle the kindof coordination required in order to restart the value networks and value chains that Europe
depends on.

Dr. Hubertus Bardt is Managing Director and Head of Research at theGerman Economic Institute. He is also lecturer at the Rheinische
Fachhochschule Cologne and the Heinrich-Heine-University Düsseldorf. Dr.
Bardt studied economics at the Universities of Marburg and Hagen andholds a PhD in Economics from Philipps University Marburg. He joined theGerman Economic Institute in 2000.

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NIRA OPINION PAPER
No.46 | May 2020

Uncertainty Exacerbates COVID-19’s Economic
Impact as Sweden Balances Epidemiology with
Individual Liberty
Tomas Kåberger
Professor, Chalmers University of Technology, Sweden
Chair of Executive Board, Renewable Energy Institute
In Sweden, the number of cases has now been stable for several weeks, and it has
been concentrated mostly in the capital region of Stockholm. The data used in Sweden so far
is based on confirmed cases. People who have been diagnosed with COVID-19 are primarily
those who work in the health sector, those who come to the hospitals with relevant symptoms,
and those counted as dying from COVID-19 due to having had relevant symptoms and being
diagnosed postmortem. On this point, one interesting aspect in the coming weeks and months
will be getting a better understanding as to what extent the virus has infected significantly
more people than those who have been diagnosed because they've had severe symptoms.
To combat COVID-19, the government has provided a lot of information andrecommendations, while imposing few restrictions in comparison to countries under lockdown
or shelter-in-place-type measures. We are still able to travel as much as we like. Restaurants
are still open, albeit following best practices to maintain necessary social distancing. Thus far,people are respecting the government’s recommendations, in large part, I believe, because
those recommendations are not seen as being politicized. In Sweden, the daily press
conferences on COVID-19 are run by the state’s chief epidemiologist, not politicians. He is
also running a press seminar every day at a fixed time. Politicians merely repeat what hesays regarding disease control and make suggestions on how to handle the economic
consequences.
I would expect that the Swedish economy will be significantly less affected thanmany other countries where regulations have forced a myriad of sectors to close down
completely, although the tourism sector, including travel companies, aviation companies andtourist-focused hotels, have of course been severely affected. Small technology companies
have also been significantly impacted by COVID-19. Since the financial sector is becoming
much more hesitant to take on any new investment decisions, small technology companies
which are dependent on continuous finance from investors during the startup phase of theirbusiness are facing difficulties.
As in the case of Germany, there are policy instruments to support the sectors facing
challenges by compensating them for their losses. For example, companies that need to lay
off employees temporarily can receive government support to continue paying a portion of
those employees’ wages to them. There are also many special loans and financing options
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available. However, for many companies, that is not really going to save them as they are
reluctant to borrow money that will be difficult for them to pay back in the future.
In the energy sector where I aｍ active, by contrast, we see very little impact onelectricity consumption, particularly in Sweden. The electricity consumption in Sweden iseven increasing slightly despite the fact that we've had a mild winter which had brought down
electricity consumption. Electricity prices remain low due to the large amount of electricity
generated by hydropower and wind power. From a global perspective, I think one of thesectors that will be severely affected is the oil industry given that dramatic reductions in thetransport sector reduced demand around the world. Oil exporters in North America and
Norway for example, will struggle to be profitable during this period of very low oil prices. In
the US, this could lead to instability amongst financial institutions, many of which have large
investments in the shale oil industry.
One interesting point is the change in the way that Sweden is being covered in the
US media. The current Swedish measures are based on the principle of respecting individual
liberty. This has resulted in a role reversal where US TV stations that are typically very
critical of Sweden, are suddenly loving Sweden’s approach, while those that typically present
Sweden as a positive example for the US are now very skeptical of it.
In the end, uncertainty is undoubtedly a very important factor in Sweden and aroundthe world. We don’t know precisely how many people have been infected or recovered, nor
whether infection confers immunity to the virus. If the second or third wave of the outbreakhits the countries that have been most successful in mitigating the spread of the virus via
lockdowns, they will be forced to shut down again. If that is the case, this will be extremely
expensive for those countries that have been very effective in their shutdown and lessexpensive for those that have allowed the virus to spread more broadly. What is clear is thatthe long-term consequences of the various approaches will undoubtedly be up for intense
debate in the months and years to come, and I look forward to a continuing discussion on thisissue.

Dr. Tomas Kåberger is a professor at Chalmers University of Technology andhas been the chair of executive board of Renewable Energy Institute since2011. He holds MSc in engineering physics and PhD in Physical Resource
Theory at Chalmers University of Technology. Dr. Kåberger was director
general of the National Swedish Energy Agency from 2008 until 2011.

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NIRA OPINION PAPER
No.46 | May 2020

More Coordination Neeeded to Combat the
Disparities in Europe’s COVID-19 Epidemic
André Sapir
Professor, Solvay Brussels School of Economics & Management, Senior Fellow, Bruegel
Despite major differences in how COVID-19 has impacted the heath situation in
individual countries, Europe’s economic interconnectedness means that all countries havebeen gravely economically impacted. According to the European Commission’s latest Spring
forecasts all EU27 countries will see GDP contract by 5%-10%. To take an example, theGerman health situation may be relatively mild, but if factories in Italy are unable to supply
essential parts to the German automobile industry and if customers in France are unable togo the store to buy cars, then the German economy will be severely impacted. This kind of
dynamic can be seen throughout Europe.
However, while the economic impact from a purely numerical perspective may besimilar, the capacity of countries to counteract it is not. Germany and a number of othercountries entered this crisis in a favorable fiscal position and are thus much more resilient
than some other European countries. Italy, Greece and Spain by contrast, were already facing
difficulties, and the fact is that these countries along with France are all countries where
tourism, one of the industries most impacted, plays a major role. Thus the overall impact andthe capacity of different countries to digest the health and economic shocks beyond 2020
remains a very real question.
In mid-March the ECB put forward the Pandemic Emergency Purchase Program,buying massive amounts of both government and corporate debt. The ECB has alsoannounced it will further loosen its collateral policy. So, the ECB is signaling to governmentsthat they should not be shy about getting indebted to deal with this crisis.
Nonetheless, there are still concerns in countries such as Italy, about what happens
when the crisis goes away, if their debts, which were already high before the crisis, increase
massively. As long as the ECB is essentially providing insurance to governments andbusinesses that it will purchase their debt on a massive scale, there is no problem. However,while discussion exists about how debts could, potentially, be mutualized, that doesn't fit withthe existing political configuration of Europe and thus, the potential for a future sovereign
debt crisis certainly exists.
Looking forward, a key question for Europe and the world is when and at what speed“deconfinement” should take place. Interrelated with this question is that of the timing andpace of a resumption of more normal international travel, trade, and migration. Given thevast differences in COVID-19 status across countries and regions this will of course have tovary. What is important however, is to recognize how all of our economies are incrediblyintertwined. So every country big or small, both in the EU, and globally, but even more so in
the EU, where we are so much more intertwined, has an interest in, and a responsibility to
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promote greater policy coordination on these issues. Particularly for countries like Germany,
which are emerging from the pandemic in a stronger position and are also export-orientated,
there is an expectation that they will exercise responsible and compassionate leadership torebuild international cooperation.

André Sapir is a Belgian Economist and Professor at the Solvay Brussels
School of Economics & Management. He is also a Senior Fellow at Bruegel,the Brussels-based think tank and a fellow at the Centre for Economic
Policy Research, as well as a founding Editorial Board Member of theWorld Trade Review. He has been an economic adviser to the European
Commission President, and was the coordinator of the landmark report on
Europe's growth policy known as the Sapir Report. He is a member of theKing Baudouin Foundation’s Board of Trustees and of the International
Scientific Advisory Councils of the Vienna Institute for Comparative
Economic Studies.

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NIRA OPINION PAPER
No.46 | May 2020

Japan Ramps Up to Fight COVID-19
While Eyeing Increased Global Cooperation
Yanagawa Noriyuki
Executive Vice President, Nippon Institute for Research Advancement,
Professor Graduate School of Economics, The University of Tokyo
The situation in Japan is currently quite different from that in the United States andthe European Union, although Japan’s approach to countering the virus bears many
similarities to that of Sweden. The most obvious difference is clearly the number of COVID19 deaths in the country so far, which has been quite low compared to the US and European
countries: roughly 550 deaths for a population of just under 127 million, which equates to justover 4 deaths per million inhabitants. The reason for the current low mortality rate is still
unknown, and the number of confirmed cases and deaths in Japan has recently begun toaccelerate. Concern over this increase led the Japanese government to declare a state of
emergency in Tokyo and six other prefectures containing major metropolitan areas on April
7, and that state of emergency was expanded to cover the entire country on April 16. The
duration of the state of emergency was recently extended and is tentatively scheduled to bein effect until May 31.
That said, the state of emergency declared in Japan resembles neither the hard
lockdown seen in Wuhan and parts of Europe, nor the “shelter-in-place” orders in effect inparts of the US. It is often referred to as a “soft lockdown.” The law upon which the declaration
was issued does not give prefectural governors powers to forcibly restrict people’s freedom of
movement, nor sanction companies that continue operating during the pandemic. The law
only provides that they can issue a “request” strongly urging them to stay home and limit
business operations. Under the law, many restaurants and most supermarkets are open, andtravel within Japan is generally unrestricted.
Nonetheless, the government’s requests possess real weight and have produced anoticeable impact due in part to social customs or social pressure surrounding obeying
government requests. Many Japanese are now staying at home and the economic impact of
this policy will be huge, particularly in the restaurant, hotel, and tourism industries that havebeen so heavily affected by similar policies around the world. To be more specific, if this policy
continues for 2 to 3 months or even longer, many restaurants, hotels, theaters, and otherbusinesses in the service sector will, depending on the degree of continued compliance by the
populace, go bankrupt unless significant subsidies or other relief is provided by thegovernment. The most recent economic forecasts show a sharp decline in the annual GDP
growth rate to around -3% at best.
However, the impact on the supply side, for example in the manufacturing sector, has
not yet been seriously damaged despite a sharp decline in the exports of automobiles andsome electronics over the past few months. Although domestic production at automobile
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Copyright Ⓒ 2020 by Nippon Institute for Research Advancement

NIRA OPINION PAPER
No.46 | May 2020
companies such as Toyota and Honda saw a 13.2% and 11.4% year-on-year decline in March,
respectively, and total domestic production is estimated to have declined by over 40% in April
according to the Nikkei Shimbun, there are signs pointing to a recovery, particularly in theexport of automobiles to China, which have increased by 19.2% as the Chinese economy has
recovered. In summary, the slowdown of economic activity in the manufacturing sector has
been mild so far.
Nonetheless, indicators such as the increase in claims for unemployment and theincreasing number of bankruptcies are a real cause for concern. These generate a heavy
reduction of total aggregate demand in the Japanese economy, which might generate further
financial distress for Japanese companies, or otherwise negatively influence the balance
between supply and demand. The most recent figures indicate the number of COVID-19related bankruptcies has now exceeded 100 companies across a variety of industries including
hospitality, restaurants, and bars, with the impact expected to increase going forward. I fear
this negative interaction could generate a global decline of aggregate demand that could
precipitate a global economic depression.
Japan announced its economic countermeasure plan, the Emergency Economic
Package Against COVID-19, in April. The total amount exceeds 117 trillion yen, equivalent
to over 20% of Japan’s GDP. The most significant measures include cash handouts to all
Japanese residents, the deferral of tax payments and social security contributions bybusinesses, and concessional loans from public and private financial institutions. While themeasures may sound significant, most experts think it is too small to spur a proper recovery
from the economic shock that COVID-19 has given the country. In an attempt to provide
further assistance, the Bank of Japan has decided to pursue a more aggressive monetary
policy through unlimited purchases of Japanese government bonds, along with special fundssupplying operations providing loans to financial institutions to facilitate the provision offinancing to corporations during the crisis.
It is important to pursue policies that will provide adequate monitoring of thesituation and address the decline in aggregate demand in our countries during this time ofcrisis, and as some countries enter a tentative recovery period. We should share information
about our projected economic conditions, particularly on the demand side, because changes in
global demand might generate a macroeconomic shock to the global economy, which could
weaken financial markets and potentially generate a second Great Depression.

Dr. Noriyuki Yanagawa is an executive vice president at the Nippon Institutefor Research Advancement. He is also a professor at the Graduate School of
Economics, at the University of Tokyo where he received his PhD in
Economics in 1993. His research specializations are contract theory andfinancial contracts. He has served as a member of Japan’s Council on
Economic and Fiscal Policy, and participated in various other initiatives of
the Japanese government.
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Copyright Ⓒ 2020 by Nippon Institute for Research Advancement