Written for JESPIONNE

Sophia Antonella Bernini

The Italian economic crisis already existed prior to the COVID-19 outbreak. Their lack of industry left them to be a vulnerable member of the European Union, and their unemployment rate consistently ranked as one of the highest especially among

young adults. According to an article written by Bocconi University in Italy, The Economic Cost of Social Distancing, the 6 week lockdown will severely impact several members of the Union, “Two Bocconi professors estimate that French

GDP could decrease by 5.6% due to the measures against COVID. The same measures would cost 6.6% of the GDP in Italy, 5.7% in Germany, 5.5% in the United Kingdom and 6.7% in Spain” (Bocconi University). The hit that Italy has taken is making it hard for the EU and other nations to be willing to lend to them based on their fear of Italy defaulting on their loan. This economic crisis closely resembles the eurozone debt crisis. In 2011 the European Union suffered from several members defaulting on their loans. This caused inflation of the euro. The crisis was more or less averted by the 2011 intergovernmental treaty that represented German Chancellor’s, Angela Merkel, 7-point plan to create economic stimulus. The superpowers of the EU, France & Germany, are also taking hits making it difficult to distribute the proper amount of bailouts needed for each EU country in need. The Italian government has had

had to increase spending dramatically to aid its citizens during the pandemic. It has cut mortgage payments for the month and has supplied stimulus packages to help aid citizens affected by the corona virus. The prime minister Giuseppe Conte has supplied about 750 million euro in stimulus aid. In addition to supplying help for individuals, it also supplies aids to small and large business firms. Italian leaders are begging for solidarity among EU members for corona bonds that will aid in stopping the complete crash of their economic systems. According to a euro news article published at the start of April, the 750 million euros used in stimulus accounts for over half of Italy’s current GDP (EuroNews). Countries such as the Netherlands, Denmark, and Germany are apposed to the idea of debt sharing since it will harm their countries economics, and could

lead to further debt sharing in the future. These countries were the same ones who rejected the idea during the 2011 Eurozone crisis. The economic model created by Boccani University economics department to measure the economic impact of the virus, has found that in addition to the sectors expected to be affected the most by the COVID outbreak, hospitality and tourism, the construction and utility sectors are equally being affected. This is extremely problematic, because one of Italy’s largest economic contributors is infrastructure. lead to further debt sharing in the future. These countries were the same ones who rejected the idea during the 2011 Eurozone crisis. With the economy quickly spiraling into depression, policy makers are looking for anyway to boost the economy.

The Financial Times explains Italy’s most recent efforts, “ The country’s Treasury said on Thursday it would launch a new bond next month aimed at retail investors, with the proceeds embarked for health spending and measures to shield the economy from the impact of the pandemic” ( Financial Times). The bonds will be tied to inflation rates and be sold in maturities of four to eight years (Financial Times). These rates will allow for retail and institutional investors to feed off the borrowing cycle that Italy currently stands in. In the addition to the bonds there will be nominal bonds given to retail purchasers of the BTP Italia bond. The nominal bond will give investors peace of mind, because nominal bonds offer a fixed return. Although this will not fix the economic crisis it will soften to economic blow caused by COVID-19.

Reference Article


Social distancing is proving to be the most – if not the only - effective tool we have to limit the cost of the COVID-19 outbreak in terms of human lives, but it comes with a difficult-to-estimate price tag in terms of GDP decline.
Two Bocconi Professors, Basile Grassi and Julien Sauvagnat, and one from HEC Paris, Jean-Noël Barrot, estimated the economic consequences of the 6-week lockdown imposed by the French authorities in a 5.6% annual GDP decline using a standard model of production networks that takes into account the sectorial interdependencies of the French economy. The same measures would have different costs in countries with different sectorial composition, they argue, and estimated that the loss of GPD – had other governments taken the same French measures – would have been 6.6% in Italy, 5.7% in Germany, 5.5% in the United Kingdom and 6.7% in Spain. The European country most prone to social distancing economic costs turns out to be Bulgaria (with a decline of 9.2%), the least prone Denmark (-4.3%).
The authors start by estimating as 52% the decline in active workforce due to administrative closings (restaurants, hotels, etc.), school closings (that affect not only the school employees, but also those with dependent

children) and confinement rules (that allow only those able to telework to continue). This translates into different production cuts, depending on the features of each sector and on their interdependencies. The model they use takes into account both the elasticity of substitution among goods (i.e. the response of household consumption) and the elasticity of substitution in intermediate consumption (i.e. the response of industrial sectors).
If 5.6% is the total GDP growth decline, sectors are differently affected. Besides the sectors directly interested by the closures (tourism, restaurants), those that record the worst decline are the upstream sectors, more distant from end user demand.
With their exercise, the three scholars intend to provide policy makers with a useful, if imperfect, tool that can complete their dashboard for making decisions about social distancing measures. «Our model», they concede, «doesn’t consider international trade, automatic stabilizers, and the measures taken by the government to support the economy. Anyway, we are working on the latter two aspects».

Policy makers could also derive from the study important suggestions for a deconfinement strategy, as the authors run a simulation of what could happen if the measures were lifted in a differentiated way after 4 weeks instead of 6. Deconfining some age groups, regions or sectors before others would make a difference. In particular, the strongest economic effect would come from deconfining the construction sector first.





Photos by

Drago, A. (2020, February 25). Honor Guards [Photograph]. Reuters.
Gyanvati, a migrant worker, cooks food for her family after she returned home from New Delhi during nationwide lockdown in India [Photograph]. (2020, April 8). Reuters.
Siddiqi, D. (2020, April 8). Shivam Kushwaha [Photograph]. Reuters.


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July 1 st, 2020