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2008 crisis and economic shock of the coronavirus: comparison

The 2008-2009 recession had a financial origin: the collapse of “subprimes”, these mortgage loans granted lightly by American banks. The current crisis comes from an external shock affecting the real economy and is spreading as the countries become more caulked.

With the shutdown of factories in China, it initially affected supply by disrupting the supply of businesses, but it is now expanding on demand, with consumers forced to stay at home, who cancel or push back their movements and their purchases.

The epicenter of the subprime crisis was in the United States, the world’s largest economy. The coronavirus crisis started in China and highlighted the weight of the second largest economy in the world.

Difficult coordination

After the Lehman Brothers bankruptcy, the United States had connected with its allies. The crisis saw the birth of the G20, which integrated the main emerging powers.

The global political landscape has changed. The G7 is this year chaired by the United States, which launched all-out trade wars, and the G20 by Saudi Arabia, which has just exploded international regulation of oil prices.

“We are in a fragmentation that occurred before the shock and it is difficult for all the leaders of the world to sit around a table,” says Ludovic Subran, chief economist at Allianz. However, an extraordinary G7 summit is scheduled for Monday by videoconference and could lead to stronger coordination, now that the United States is also affected.

The lost luster of central banks

In 2008, the main central banks joined forces to lower their rates and inject liquidity. They had also played a decisive role in ending the crisis by purchasing public and private debt.

Twelve years later, they do not have the same room for maneuver in the face of a crisis which, moreover, was not originally banking or financial. If the US Federal Reserve and the central banks of Canada or England lowered their rates, the ECB has not budged for the moment, its own being already on the floor. “In 2008-2009 we had the big big bang of central banks,” said OECD economist chief Laurence Boone. “We need the same big bang, but on the budgetary side this time.”

The same stimulus?

In the months following the 2008 crisis, countries spent massively. The French budget deficit has exceeded 7% and the United States has even nationalized the automobile giant General Motors to avoid bankruptcy. But from the 2010s, Europe began to apply drastic austerity measures.

In 2020, the announcements follow one another to cushion the shock, Germany, however attached to budgetary discipline, even promising to support “without limit” the financing of the real economy. To see if these emergency measures will lead to long-term stimulus policies, or a return to control of public spending.

Another globalization?

Since 2008, globalization has changed its face. The emerging countries, which have dragged the economy for a long time, have in fact emerged: “The wealth per person in China is ten times greater and the costs are much higher than twenty years ago”, notes Vicky Redwoord, economist at Capital Economics.

Faced with the trade war, or for security, financial or even environmental reasons, the companies that relocated at all costs had already started to think about shorter and simpler production chains.

“This coronavirus crisis is only one more element to explain the U-turn in globalization which we are likely to witness,” said Olivier Blanchard, former chief economist of the IMF, in an interview with L’Express.

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