IMF urgently calls for more robust recovery plans to avert depression

He warns that if the paralysis of consumption is not addressed, there is a risk that the recession will turn into a "great depression".

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The International Monetary Fund (IMF) warns that if the paralysis of consumption is not addressed, there is a risk that the recession will turn into a "great depression," and that requires, among other things, more ambitious public recovery plans than those currently in place.

"The coming months are going to be very bad. It is imperative to stem this loss of confidence, to relaunch and, if necessary, replace private demand if we want to prevent the recession from turning into a great depression," warns the IMF's chief economist, Olivier Blanchard, in an interview published by "Le Monde".

Blanchard noted that "for the moment" it would be sufficient to inject the previously mentioned figure of 2% of global Gross Domestic Product (GDP) into the economy for these recovery plans, but added that "if circumstances demand it, states have to be ready to do more, 3% or more."

"The important thing is to support activity and revive the economy now" because "the next six months are crucial," he argued before pointing out that if Germany does not participate in this boost, which he considers essential, other countries will hesitate and that "would be disastrous for Europe."

Asked whether there was a risk of worsening public finances, the IMF's chief economist replied that "in normal times we would have recommended that Europe reduce its deficit. But these are not normal times."

The priority, in his view, is to restore confidence in order to revive demand through monetary and budgetary instruments, but also by restoring the financial system so that banks can once again lend to individuals and businesses.

This requires financial institutions to "recognize their losses and clarify their balance sheets," something they are doing "too slowly" and which creates uncertainty.

Blanchard predicted that when banks are transparent about their situation, it will be seen that "they are clearly under-capitalized" and it will be necessary to "inject fresh money," and in that, states "will have to be willing to replace, at least partially and temporarily, private credit."

Regarding state recovery plans, he considered it preferable that they focus on increasing public spending rather than decreasing it: "building bridges or renovating schools can have more effects on demand than tax cuts that families may be tempted to convert into precautionary savings."

For this very reason, "it is better to focus on the population that is unemployed or in debt, since they need it more and will spend (the money) immediately, which will contribute to the reactivation of economic activity."

The IMF's chief economist explained that emerging countries have to face a massive withdrawal of capital, which for some can represent up to half of their GDP, and brings with it exchange rate crises.