Pandemics, Climate and Public Finance

The outbreak of COVID-19 and the containment measures are having an unprecedented socio-economic impact in the European Union (EU) and elsewhere. The policies introduced so far in the EU countries promote a ‘business as usual’ economic recovery. This short-term strategy may jeopardise the mid-to-long-term sustainability and financial stability objectives. In contrast, strengthening the socio-economic resilience against future pandemics, as well as other shocks, calls for recovery measures that are fully aligned to the objectives of the EU Green Deal and of the EU corporate taxation policy. Tackling these long-term objectives is not more costly than funding the current short-term measures. Remarkably, it may be the only way to build resilience to future crises.

Market Risk Measurement

This chapter presents a preliminary analysis on how some market risk measures dramatically increased during the COVID-19 pandemic, with measures computed over longer horizons experiencing more pronounced effects. We provide examples when regulatory market risk measurement proved to be suboptimal, overestimating risk. A further issue was the large number of Value-at-Risk ‘exceptions’ during the first few months of the crisis, which normally leads to overinflated bank capital requirements. The current regulatory framework should address these problems by suggesting improvements to the calculation of risk measures and/or by modifying the rules which determine capital requirements to make them appropriate and realistic in crisis situations.

Stock Performance When Facing the Unexpected

The COVID-19 crisis has had enormous costs. The effects on financial markets were exacerbated by panic, fear of the unknown, fear of the end of the world as we knew it. This panic obfuscated our ability to make rational predictions on future cash flows and asset values. Overall though, our economic system is bouncing back. We can learn from this experience and build more flexible models which can help us to better manage severe systemic risks.

Reshaping the Future

Alternative data has steadily become more mainstream in investment decision-making. These non-traditional datasets provide a channel to draw insights from information as diverse as satellite images, news, tweets, mobile and internet traffic and credit card purchases. While alternative data has become an industry buzzword, making meaningful use of it remains a challenge. The ongoing financial crisis caused by the COVID-19 pandemic poses unprecedented challenges. This chapter explores examples of how alternative data can be used to help economic recovery.

Travel and Tourism

The travel and tourism sector was hit more rapidly and deeply by COVID-19 than most other sectors. Recovery to pre-COVID-19 activity levels is likely to be prolonged, and questions are raised whether enforced change in consumer behaviour will have long-term effects. The travel and tourism sector has a history of reinventing itself, and previous predictions of decline following crises have often been short-lived. This chapter reviews historical precedents and theories of consumer behaviour to explore whether recovery will be different this time round, especially given the possible habit breaking effects of online substitutes, and political expediency of reducing causes of climate change.

COVID-19 and Its Impacts on Talent Mobility in China

COVID-19 has caused countries around the world to close their doors and put strict measures on the mobility of people across geographical boundaries. What will be the impact on highly skilled talent? We address this important question by exploring the experiences of European researchers in China during COVID-19. We do so by utilising the newest unique data gathered in a survey by EURAXESS, which reports that 47% of the European researchers in China left due to the outbreak. We complement this with archive data, interviews, and COVID-19 regulations to discuss and forecast future scenarios for talent mobility to and from China.

COVID-19 Pandemic and Gender Inequality in the Labour Market in the UK

Although the movement towards gender equality in the labour market has slowed in recent decades, a long-term view over the 20th century shows the significant narrowing of the gender employment gap in the UK, a result of the increases in women’s labour force participation and employment combined with falling attachment to the labour force among men. It is too early to assess with precision the extent to which these patterns will be affected by the Covid-19 pandemic but emerging evidence and informed speculation do suggest that there will be important distributional consequences. Various studies, produced at an unprecedented rate, are pointing out that the effects of Covid-19 are not felt equally across the population; on the contrary labour market inequalities appear to be growing in some dimensions and there are reasons to believe that they will grow more substantially in the medium term.

Recovering from the Economic Impact of COVID-19

This chapter examines what lessons can be learned from three previous crises that created public debt mountains of similar magnitude to the pandemic: the First World War, Second World War, and Credit Crunch. In all three cases the Treasury pressed for drastic spending cuts, to maintain confidence in sterling and the City. However, in the one case where the Treasury’s advice was rejected, there was a substantially stronger recovery. The Treasury has similarly lobbied for austerity measures to deal with the Covid-19 government debt, again raising the spectre of slow growth and mass unemployment.

Real Estate and the Effects of the COVID-19 Pandemic in Europe

The real estate industry was severely affected by the COVID-19 in both the residential and the commercial sectors due to travel and site-visit limitations, rent sustainability issues and a decrease or higher uncertainty about disposable income. During the lockdown, houses became more important and were analysed in depth. It can be assumed that a new demand could emerge after this crisis making households looking for more comfortable houses since this asset will increase its importance for living and working. Similarly, the commercial real estate sector will change due to lower rent sustainability. However, the main expected change is related to the building type and the standards requested by tenants in the new economic environment.

COVID-19 and Fiscal Policy in the Euro Area

In this chapter we document fiscal policy developments in the main euro area economies over the last two decades and highlight the dramatic changes triggered by the COVID-19 pandemic. We analyse how euro area yield curves respond to COVID-19 related expectations of fiscal expansion. We show how fiscal constraints may affect interest rates. Upward pressure on national yields from higher debt levels could compromise fiscal and financial stability in the long-term.