COVID-19, ECB and speculative bubbles...(EN/FR)

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Despite the global recession linked to Covid-19, stock markets are reaching levels similar to those before the health crisis. Recovery plans driven by world leaders and supported by central banks raise fears of a disconnection already highlighted by the IMF .

Quick review of companies at the time of lockdown.

In summer 2020, when lockdown was removed, the economic activity picked up strongly in France and around the world, and the upturn is taking shape in the third quarter of 2020. Indeed, with a GDP rebound of +18.2% in the third quarter of 2020, the French economy seemed to be picking up just before the new lockdown measures were announced. These measures provoked a downturn in company’s activities although they had barely healed from the first lockdown consequences. A Euler Hermes study forecasts 64,000 business bankruptcies by 2021, which accounts for a +32% increase between 2020 and 2021. If CAC 40 companies seem capable of surviving despite the sanitary conditions, they nevertheless face difficulties caused by a slowdown in French household consumption in particular.

On a global level, forecasts are even more alarming with company failure rates estimated at +35% in 2021; and certain disaster scenarios converge towards +85%/+95%.

What are the public authorities suggesting and why?

Everywhere, the priority is given to recovery despite the budget deficit. In France, for example, the government announced a €100 billion recovery plan on 3rd September, three times as the one announced following the 2008 crisis. In Europe, the heads of state and of governments agreed on a 750 billion euro recovery plan on 21st July.

At the same time, the European Central Bank implanted a massive debt buyback policy in order to absorb and finance the deficit of the member states. In practice, the European States economically support the actors that are indispensable to their national economies: the banks and indirectly the companies. This aid comes on top of government debt and; in order to avoid a loss of confidence in the public authorities by financial players; the ECB buys back government debt to reassure the financial markets of the reliability of government bonds.

By purchasing public securities on the secondary market or under repurchase agreements, the ECB will enable European States to avoid a liquidity crisis. Moreover, it is a fall in consumption that leads States to resort to such methods in order to support companies indirectly by backing national banking institutions.

Why is this a problem?

When we compare the solutions proposed following the 2008 crisis with those implemented in response to the current pandemic, it turns out that the instruments used by the ECB are similar even though the crises differ in their causes: the coronavirus crisis results from a slowdown in the real economy while the subprime crisis is primarily a financial crisis. The portfolio reallocation mechanism, the signal effect, the liquidity channel, the duration effect and the risk-taking channel are all asset purchase programmes that allow markets to recover while the real economy is still operating in slow motion.

In other words, the rise in the price of an asset appears to be decreasingly linked to economic realities and increasingly to speculative realities. Hence, recycling unconventional monetary policy instruments to relaunch financial markets seems to widen the gap between Wall Street and Main Street.

The consequences: era of uncertainty despite the investments and the advent of a financial asset bubble…

First of all, the main risk of such a policy of repurchasing public securities seems to be that of inflation. Indeed, after several months of distributing compensation income to companies and households without corresponding production and consumption, inflation is likely to become inevitable.

Moreover, the under-investment observed during the period of containment is likely to slow down the resumption of production. However, all these investments may well be in vain without a strong recovery of the economic activity disrupted by further lockdown measures.

As for the ECB's asset repurchase measures (also known as quantitative easing measures), it is feared that these will temporarily boost stock markets, which would only fall more sharply in the longer term. Future lockdown measures or the asset speculative bubble’s burst could lead to further financial market crisis.

VERSION FRANCAISE-----------------------------------------------------

En dépit de la récession mondiale liée à la Covid-19, les marchés boursiers atteignent des sommets similaires à ceux précédant la crise sanitaire. Les plans de relance impulsés par les dirigeants mondiaux et soutenus par les banques centrales font craindre une déconnexion déjà soulignée par le FMI…

Rapide état des lieux des entreprises à l’heure du reconfinement.

Au début du déconfinement de l’été 2020, l’activité économique reprend fortement en France et dans le monde et l’embellie se dessine au troisième trimestre 2020. En effet, avec un rebond du PIB de +18,2% au troisième trimestre 2020, l’économie française semble reprendre son souffle juste avant que ne soient annoncées les nouvelles mesures de reconfinement. Ces dernières provoquent à nouveau une baisse d’activité pour les entreprises à peine remises du premier confinement. Une étude d’Euler Hermes prévoit d’ailleurs 64 000 faillites d’entreprises d’ici 2021 soit une hausse de +32% entre 2020 et 2021. Si les entreprises du CAC 40 semblent capables de survivre en dépit des conditions sanitaires, ces dernières se heurtent néanmoins aux difficultés causées par un ralentissement de la consommation des ménages français, notamment.

Au niveau mondial, les prévisions sont encore plus alarmantes avec des défaillances d’entreprises estimées à +35% en 2021 ; et certains scénarios catastrophes convergent vers +85%/+95%.

Que proposent les pouvoirs publics et pourquoi ?

Partout, la priorité est à la relance malgré l'explosion du déficit budgétaire. En France par exemple, le gouvernement annonce dès le 3 Septembre un plan de relance de 100 milliards d’euros, soit trois fois plus que celui annoncé suite à la crise de 2008. En Europe, les chefs d’Etat et de gouvernement européens s’accordent sur un plan de relance de 750 milliards le 21 Juillet dernier.

En parallèle, la banque centrale européenne met en place une politique massive de rachat des dettes afin d’amortir et de financer le déficit des Etats membres. Dans la pratique, les Etats européens soutiennent économiquement les acteurs indispensables à leurs économies nationales : les banques et indirectement les entreprises. Cette aide vient s’ajouter aux dettes des Etats qui ne font que grimper. Afin d’éviter une perte de confiance des acteurs financiers envers les pouvoirs publics, la BCE rachète donc leurs dettes afin de rassurer les marchés financiers de la fiabilité des obligations gouvernementales