As well as posing a severe public health threat, the pandemic has also wreaked havoc on the economy. Economic and financial systems buckle and bend under the strain of shocks, as is now evident with the various contractions and swellings showing up.

The worldwide contractions are plain for all to see, with slumps in economic activity in every affected country; precipitous GDP declines; downturns in consumer spending and business investment; a major sell-off in equities; reduction in global trade, etc. Considerable swellings have also become apparent. For example, government and social security spending has increased, government and social security deficits have soared, driving up debt burdens. The money supply has skyrocketed, and so have central banks’ balance sheets. Unemployment and vulnerability have risen to new highs. Trends have varied even more widely from sector to sector. Certain industries, among them restaurants, tourism, airlines, and airports, have been dealt heavy blows, while others, such as telecoms, gaming, home deliveries, have boomed.

The vast majority of these global contraction and swelling phenomena can be traced back to decisions by the authorities. All the measures they have taken to address the pandemic—partial or general lockdowns, curfews, travel restrictions, etc.—have had recessionary effects on economic activity, which the authorities have attempted to cure using the conventional treatments for economic recessions. However, one major difference sets this apart from other recessions: its origins do not lie in the economy, it was not sparked by an endemic flare-up of economic imbalances, and it is not part of a normal short- and medium-term cycle.

The pandemic is an “exogenous” shock—from outside the economic system. And this shock was not anticipated by businesses or governments. Decisions-makers in every area have simply been making things up as they go along. A pandemic was a major risk factor that had been ignored, downplayed and dismissed. The failings of public risk management are plain for all to see. The lack of preparedness has driven up the cost of the pandemic in the strict sense of the term.

Uncertainties about how the crisis will play out are embedded in questions as to how the main variables will behave. Only one thing is for sure: the most elastic economies will bounce back more rapidly than the most rigid, a category to which France sadly belongs.

There may be a real rebound, akin to the release of tension from a spring, in a number of variables. That’s most likely true for consumer spending, which should roar back once the pandemic comes to an end. Supply is more sluggish and will take longer to regain its pre-shock level. This supply-side latency is likely to fuel inflationary pressures, with consumer spending powering up as households dip into the precautionary savings they accumulated during the crisis.

The other area in which we have already seen a recovery is, of course, the equity market. After a record tumble at the beginning of the pandemic, stocks have, broadly speaking, returned to their pre-crisis levels.

For other variables, there is a major difference between the speed at which the contraction hit and the speed at which it will be overcome. There’s no doubt at all that it will take much longer to bring public debt back down than it did for it to swell. The recovery, even if it is a strong one, will not suffice to generate primary surpluses. What’s more, every government will be reluctant to hike taxes once the crisis ends because of the recessionary effects this has.

The same holds true for addressing the liquidity surpluses created by central banks. To do so, interest rates would need to be raised. The dilemma facing central bankers is easy to understand because any decision to do so would be highly detrimental for government finances. An upturn in interest rates that spirals out of control could easily send the bond market into a tailspin.

Economic agents’ expectations will help shape the next chapters in the story of the pandemic. If central banks’ credibility is badly tarnished, bondholders will end up footing the lion’s share of the bill for the pandemic! After a shock, some phenomena cannot be reversed, and some losses are irretrievable, such as losses of human life and reduced fertility, etc. Some businesses will not have survived the shock. All sectors in which business cannot be “stored up”, such as services, have lost value that will never be recovered. Countless missed overnight hotel stays, restaurant meals, haircuts, etc., have been lost forever. The formation of human capital has also experienced a severe and lasting hit owing to the closure of schools and universities.

Things won’t get back to normal any time soon. We will all have to help foot the very steep bill for the pandemic, which amounts to around 10% of national income. We are still looking for answers to many questions: will we have to start paying straight away, further ahead… or never? Will we foot the bill through heavier payroll charges, through erosion in the value of bond savings and/or a reduction in our purchasing power driven by inflation? Will the whole population, savers, taxpayers, the wealthiest or all taxpayers be left to carry the can?