Denmark’s Idea Could Help the World Avoid a Great Depression
By now we have seen most countries come up with stimulus programs to help prevent a catastrophic economic collapse caused by forced lockdowns and social distancing. However, as early as last week, Denmark rapidly stitched up with a plan which still remains the most radical of stimulus programs. Stimulus might be a misnomer given the measures actually amount to ‘freezing the economy’. Measures that will cost the Danish government as much as 13% of GDP, all spent in three months flat.
“Denmark’s government agreed to cover the cost of employees’ salaries at private companies as long as those companies do not fire people. If a company makes a notice saying that it has to either lay off 30 percent of their workers or fire at least 50 people, the state has agreed to take on 75 percent of workers’ salaries, up to $3,288 per month. (This would preserve the income for all employees earning up to $52,400 per year.)
The philosophy here is that the government wants companies to preserve their relationship with their workers. It’s going to be harder to have a strong recovery if companies have to spend time hiring back workers that have been fired. The plan will last for three months, after which point they hope things come back to normal…
…Denmark is putting the economy into the freezer for three months. You’re saying: We know that all these people won’t be able to work for the next few months. It’s inevitable. Rather than do rounds of firing followed by rounds of hiring, which will delay the recovery, let’s throw the whole economy into a deep freezer, and when the virus winds down we can thaw it out and almost everybody will still be with the company they worked for in January…We are freezing the economy. Because otherwise the government is afraid of the long-term damage that this will do to the entire system. The hope is that this will be over in three or four months, and then we can start up society again.
.. To prevent the financial sector from shutting down, the state will guarantee 70 percent of new bank loans to companies. This will encourage more lending even in the case of more bankruptcies
Also, the state agreed to compensate companies for their fixed expenses, like rent and contract obligations, depending on their level of income loss. If they typically sell $1 million in a period, but now they can only sell $100,000, they lose 90 percent of their income. That will qualify them to receive large government help to cover fixed expenses.
Also, the spring payment of taxes for companies have been postponed until autumn, and all public employees will keep their salaries when sent home.”