The measures taken by the Swiss government to alleviate the economic effects of the coronacrisis will fall short of what is needed. The costs of maintaining a business aren’t covered, say two professors at ETH Zurich.
Two weeks ago, Hans Gersbach and Jan-Egbert Sturm, two economics professors at ETH Zurich, launched the idea of a Switzerland fund to help companies and workers affected by the crisis caused by Covid-19. They proposed to use some of the Swiss National Bank’s distribution reserve for the 100-billion-franc ($104 billion) fund.
A few days after their widely reported proposal, the government decided to release 42 billion francs for emergency liquidity available for companies and to finance the widespread introduction of furlough. The liquidity loans however won’t help companies recover the lost revenue and may eventually add to their woes through an increase in debt.
A Third Pillar of State Aid
The measures taken by the government so far evidently won’t suffice, Gersbach told finews.com on Tuesday. A third pillar is needed – a short-hour-regime for capital to keep companies fit for the time after the crisis.
Sturm and Gersbach propose that companies can claim part of their capital costs – rent and interest – from the state. The money would be paid through the same channels as the emergency liquidity loans and would be calculated on the basis of their capital costs, the professors said in their paper published on Tuesday (paper available in German). The aid would be made available for the period of interruption or reduction of the companies' production.
Lenders Need to Help Too
Alternatively, the government could also decide to reimburse companies with part of the value-added tax paid for 2019. The money would be given as an advance and the government could calculate the final rebate granted after the crisis is over.
The authors didn’t provide a figure for the amount that the government should make available for this type of support for Swiss companies in need. They also stressed that firms had to carry some of the costs themselves and that lenders will have to pitch in as well.
Better Prepared for the Time After
But the proposal essentially aims to prepare Switzerland for the time after: «Research has shown that companies with a high rate of debt will reduce their investments more strongly after a crisis,» according to Gersbach and Sturm. «The third pillar reduces the risk of bankruptcies and ensures that the economy can hit the ground running and start investing again after the pandemic.»
