Past experience shows that extensive credit rating downgrades in the corporate sector can generate adverse second-round effects that exacerbate crises. A recent study by the European Systemic Risk Board (ESRB) illustrates how important this vulnerability may be. Specifically it is estimated that investment funds and insurance companies hold the bulk of BBB rated corporate debt holdings, one-third of which are associated with sectors considered to be pandemic-sensitive. A large-scale downgrading of this debt to below investment-grade status would entail considerable potential losses for the entire European Union (EU) financial system. Credit rating agencies play a fundamental role in this process. Accordingly, when making their assessments, they need to take into account the long-term outlook for the corporations concerned and avoid excessively procyclical behaviour. Indeed, this time round, credit rating agencies appear to have been more cautious than in the global financial crisis and, to date, there has been no recurrence of incidents comparable to those seen in the past. In any event, the results of this exercise show the systemic importance of this vulnerability and the need to be ready to provide a sufficient, internationally coordinated response, depending on how the pandemic develops worldwide. Turning now to the real estate market, this sector’s starting point was unquestionably less vulnerable than in the previous crisis, after a very significant correction both in housing investment and house prices in the past decade and with a much lower share of highlyleveraged new mortgage origination since 2008.

Instead, it should aim to promote and support the adaptation of the productive system and workers to the new realities and the efficient reassignment of resources among industries and firms. In short, the design of economic policy measures should be adapted to the changing circumstances of the crisis itself. The ability, over the coming quarters, to recalibrate the support measures to ensure that at all times they match the needs arising from the course of the pandemic will determine our opinion in a few years’ time of the success of the economic policies of today in addressing this crisis. It is this spirit of needing to adapt to continuously changing circumstances that has inspired the recent agreement between the Government and the social agents to renew furlough arrangements (ERTEs) until 31 January 2021: the agreement has introduced new forms of temporary suspension of employment relationships, in response to activity restrictions that may arise entirely or partly as a consequence of the introduction of fresh pandemic containment measures. One particular dimension of the necessary redesign of these mechanisms is a more selective focus. The protection measures should be directed at those industries and firms most directly affected by the activity restrictions resulting from the course of the pandemic, this being an aspect of the latest ERTE extension. The rationale for this heightened focus is twofold. First, public funds are limited and already subject to considerable pressure, so they need to be channelled towards those uses that yield the highest returns.