As the pandemic blockade continues, the governments and central banks in the world’s largest economies are responding through incentive programs aimed at harm reduction while uniting societies. As paralysis continues and deepens, the chances of a V-shaped economic recovery are diminishing rapidly.

The book “This Time Is Different: Eight Centuries of Financial Folly” has documented the financial crises of the last eight centuries. A central theme that is contradictory during the global financial crisis is that recessions, accompanied by severe financial crises, are deeper and recovery is slower than conventional “business cycle” recessions. The weakening of the balance sheets in the financial industry and the inefficiencies associated with widespread defaults, personal and corporate, cause serious damage to economic activity. This is often compounded by increased uncertainty and risk avoidance, economists say.

The current collapse is likely to improve the depth of crisis records. Duration is still an open question.

Economists ranked the post-1870 crises by severity, combining the extent of the initial contraction with the time required to return to the pre-crisis peak in GDP per capita.

Currently, even in a rapid recovery scenario, available data shows that many countries – including the United States – are targeting contractions in the first half of 2020, which are unprecedented because of the sheer depth of their “sudden sinkings” as measured by the decline in GDP per person between peak and bottom.

Even with the relatively rapid economic downturn in China, parts of Europe and the US would not prevent crises in many middle- and low-income countries – or a deep global recession. Economic growth was declining in many emerging markets before the advent of the new coronavirus. External debt, both private and public, continued to increase. In most countries, foreign exchange reserves of central banks are well below their peak. For many commodity producers, paying off hard currency debt, especially dollars, will be impossible, as commodity prices are near historic lows and investors are more risk-averse.

For countries that do not rely on exports of raw materials, the situation is hardly better. The pandemic has affected world trade and all types of supply chains. For tourism-dependent countries, the immediate prospects are particularly bleak. Private financing for emerging markets has dried up, and international lenders like the International Monetary Fund generally lack the resources to fill the gap.

As the pandemic continues to disrupt normal economic life around the world, the number of countries facing both acute shortages of financial resources and health emergencies will increase dramatically. In some of these cases, emergency pandemic policies will take precedence over debt repayment. Delinquencies will not be limited to personal or corporate debt. Argentina, Venezuela, and Lebanon will soon have company.

An urgent question is how to resolve the inevitable debt rescheduling that will be needed in many parts of the global economy. There have been calls for a moratorium on small business debt and homeowners in developed economies. This is reasonable. If the ability to generate income is interrupted at the time of blocking, the repayment of the debt must also be suspended. As an urgent measure that raises discretionary income and can limit the lasting damage to individual and corporate credit scores, such proposals can be integrated with incentive policies.

The problem that arises outside the richest developed economies must also be solved. An appropriate crisis relief measure targeting countries affected by the pandemic should be developed with the IMF and the World Bank. The largest creditor of many of the poorest countries in the world is China, which will also need to get involved. Ecuador is a good example. The country has among the highest rates of coronavirus infection in Latin America and its oil export revenue is falling.

If economic paralysis lasts too long, developed economies will also not be spared. Let’s think about the situation in Italy. With a downturn in production, limited fiscal capacity and a severe humanitarian problem, should the country really spend scarce resources to pay off debt instead of hospitals? Other countries in Europe may face the same dilemma. In the case of Italy, the answer is less clear than in emerging markets, since much of the Italian debt is held by local entities and not by foreign investors.

Research shows that non-standard solutions to unsustainable debt, including forgiveness and restructuring, have been widely practiced by both developed and emerging economies over the last two centuries. For the time being, however, the hardest-hit households, companies, and governments need a strong moratorium on their debt.