Corona & Risk Sharing: A European Equity Fund

SAFE-CEPR Policy Webinar on Corona & Risk Sharing: A European Equity Fund
Held on April 8, 2020

Arnoud Boot, University of Amsterdam and CEPR
Elena Carletti, Bocconi University and CEPR
Jan Pieter Krahnen, SAFE, Goethe University and CEPR
Loriana Pelizzon, SAFE and Goethe University
Marti Subrahmanyam, Stern School of Business at New York University

Moderator: Tim Phillips, CEPR

The question how to design a programme of government assistance for firms hurt by the Coronavirus Crisis triggered an intensive public and academic debate. Uncoordinated national fiscal measures that strongly rely on debt instrument, currently initiated by European governments, will likely not suffice to secure financial stability in the long run. While not pretending to provide a cure-all proposal, the speakers present a scheme that could help to bring funding to firms, even small firms, quickly, without increasing their leverage and default risk. The plan combines outright cash transfers to firms with a temporary, elevated corporate profit tax at the firm level as a form of conditional payback. The implied equity-like payment structure has positive risk-sharing features for firms, without impinging on ownership structures. The proposal has to be implemented at the pan-European level to strengthen Euro area resilience.