Earlier this week FinnishNews pointed out that giving SME’s new loans is like guaranteeing almost certain death for these companies, while the banks luxuriate with high margins and a government guarantees protecting them against credit losses.
Any handouts to the big companies and banks should be accompanied by shares in the companies and banks. Taxpayers should be able tom see some upside and not just take the losses…
The FT’s two best writers make the same points on 22.03.2020 – since there is a paywall the following summarizes the two articles:
Rana Foroohar says that governments should be giving grants, not loans because many SME’s run tight margins and would not be able to survive any additional debt burden. Governments should also consider taking equity stakes in big companies and banks in return for handouts emphasising that we could “socialise not just the losses but also the gains.”
At the country level, Wolfgang Münchau also warned that most of the money are loans, not grants and solvency deteriorates if when companies borrow while profits fall.
This advice should be heeded now by the Nordic governments.
At the national level he also points out this was Italy’s problem after the eurozone crisis when austerity left the economy in a weaker position to pay down debt. That would leave Italy like Greece “trapped in a vicious cycle”.
Helping Italy with handouts is a whole other question. Then have not done enough to sort out their banking system and corruption at the regional level is pandemic. These questions are difficult to resolve, especially when big member states have chosen to not push for reforms in these weaker countries and now expect the smaller well-managed countries to come with emergency money!
