The economic and financial carnage wrought by the pandemic could leave deep scars on the world economy for a long time to come. Central banks, at least, are stepping up to the challenge. The Fed has taken extraordinary measures to bolster U.S. financial markets through asset purchases and by providing dollar liquidity to many foreign central banks. The ECB has stated that there are “no limits to our commitment to the euro” while announcing massive purchases of government and corporate bonds and other assets. The Bank of England is set to directly finance government spending. Even some emerging market central banks, such as the Reserve Bank of India, are considering quantitative easing operations. Such measures will keep financial markets from freezing up but will not by themselves offset the fall in consumer demand or stimulate investment.

With both conventional and unconventional monetary policy tools already stretched to the limit, fiscal policy will have to do more of the heavy lifting. Well-targeted fiscal measures can soften the blow on consumers and businesses, especially small and medium enterprises that tend to have minimal buffers, thereby helping sustain employment and demand. In these desperate times, this option ought to be exercised by governments that face low borrowing costs, even if they already have high levels of public debt. Low- and middle-income countries with inadequate health systems—where the pandemic could be catastrophic—need support from the international community, potentially including concessionary debt relief.

The inability of national governments to come together even at such a critical time to forge a common front against the pandemic highlights a dangerous fracturing of international cooperation. This is further damaging business and consumer confidence, which are already in free fall.