Jeppe Druedahl from CEBI analyzes the significance of the corona crisis for the Danish economy in Information

20. March 2020

The Danish newspaper Information has published an analysis of the corona crisis’s impact on the Danish economy. It argues what it will take to get Denmark through the crisis without ending in an economic black hole. Behind the analysis is Assistant Professor Jeppe Druedahl, from the DNRF’s Center for Economic Behavior and Inequality (CEBI) at the Department of Economics at the University of Copenhagen.

Jeppe Druedahl, assistant professor at the CEBI Basic Research Center.
Jeppe Druedahl, assistant professor at the CEBI Basic Research Center. Photo: Jeppe Druedahl.

Denmark must face three challenges financially to endure the corona crisis, and the state must assume the role of “last possible buyer.” These are some of the main messages in an analysis published by the Danish newspaper Information today. Behind the article is Assistant Professor Jeppe Druedahl from the CEBI Center of Excellence at the Department of Economics at the University of Copenhagen.

The first challenge is that companies face liquidity problems because a lack of income makes it impossible to pay wages and expenses. Another challenge is that the crisis has hit so hard that we talk not only about liquidity problems but also about the fact that companies end up with a solvency problem where liabilities exceed assets and therefore creditors cannot be paid. This can further lead to, among other things, personal bankruptcies and forced auctions.

According to Druedahl, the third challenge is that the risk of solvency problems alone can lead to companies that no longer invest and Danes who stop consuming because everyone is waiting for the crisis to develop. A supply crisis is thus developing into a demand crisis.

Druedahl writes in the article that “the basic principle of economic policy in the corona crisis should be full compensation for all lost revenue and wage income. All bankruptcies and rounds of firing must be avoided, while, at the same time, it must be possible to comply with the health guidelines.”

One should not be afraid about whether the state can afford it. Besides, Druedahl argues that, among other things, the state must prepare climate investments as part of the strategy to mitigate a deep economic crisis.

Read Druedahl’s in-depth analysis of the importance of the crisis for the Danish economy, and how Denmark is faring during the crisis at Information here (in Danish)