German Chancellor Angela Merkel this Wednesday in Berlin.HENNING SCHACHT / POOL (EL PAÍS)

Covid19 has exposed the governance problems of globalization. The world is facing the worst economic crisis since the Great Depression, remember that in 1930 the nominal GDP of the United States fell more than 10%. China was slow to react but then took very drastic measures, it has taken two months to remove the state of alarm and its economy is still struggling to regain normality. Now it is Europe's turn and the United States is already closing cities like New York or the State of California, which is an economy similar in size to Germany.

Taking the Chinese measures, in two months we could see some normality in the isolation and mobility restrictions of the population. The collapse of world trade flows, private consumption, investment, capital flight and financial instability is being more intense than 2008. The debate begins to be about the recovery when the ground is not yet seen and when we reach it still can be dug. The debate should be what can be done to avoid another major depression?

A G20 has been convened next week, which is the ideal forum to agree on measures between countries. The priority is an armistice in the trade war between China and the United States. But Donald Trump has elections in November, he continues to say that it is a Chinese virus and maintains a warlike speech against the Asian giant. The lack of global agreements is one of the variables that can put at risk the long-awaited recovery in V.

The other focus of risk is that financial instability causes a credit collapse. Wholesale credit markets have already collapsed, as in 2008. Central banks maintain the credit channel with extraordinary measures. But the biggest risk is that two or three months with little income will cause the collapse of the financing channel between client and supplier. If that happens there will be another great depression. So central banks must be willing to liquefy all unpaid bill maturities and debt maturities in the global system. And to avoid massive bankruptcies of families activate the Friedman helicopter, if necessary, transferring money directly into the bank accounts of citizens.

In Europe, as in 2008, each country does its own thing. Germany was reluctant to have the ECB announce extraordinary measures to channel credit to European SMEs on Wednesday, and on Friday its government announced an unlimited guarantee for German companies. Merkel returns to Germany first, as in 2008. Italy will have a drop in GDP in the following months, close to 10%, and its deficit and public debt will skyrocket. Either Merkel urgently authorizes the European ESM fund to issue bonds and transfer liquidity to governments, or it is very likely that Italy and Spain will have to ask for a ransom soon or go directly to the suspension of payments. Will Merkel rush to the limit as in 2012 to avoid it? Or have you learned the lesson? We will see.

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