For the Eurozone, this is not a recurrence of the 2010-2012 crisis. It is far worse. The coronavirus will prove to be an economic shock, a corporate solvency crisis, and a political crisis, all packed together.

The good news is that the epidemic is unlikely to turn into a sovereign debt crisis. Last week, the European Central Bank did the right thing and reduced that probability. Its emergency asset purchase program will help governments raise money for health care and the first set of economic measures. However, the program alone cannot cope with the broader macroeconomic impact of the coronavirus. This will require different tools.

The German government will adopt an additional budget for about 5% of the gross domestic product and set aside additional funds for equity interests in companies and loans.

But be careful. What is often advertised as bazooka usually comes in small font conditions.

Much of the money is loans, not subsidies. If a business borrows money against a backdrop of declining profits, its solvency deteriorates. This was Italy’s problem after the Eurozone crisis. Austerity has left its economy in a weaker position to pay off debt.

This crisis could easily lead to the addition of 20 to 50 percentage points to the debt-to-GDP ratio of Italy over several years. If another austerity episode follows, Italy will be trapped in a vicious cycle. That is why I do not see any merit in the credit program of the European Stability Mechanism, the Eurozone rescue umbrella.

The Eurozone needs cash, not credit. But credit is what she is good at. Rescue injections are viewed with disapproval because they pose a moral hazard. So is the economic concept of helicopter money – the idea of ​​US incentives to send checks to households.

European countries have well-functioning fiscal stabilizers, such as unemployment benefits. These economic shock absorbers are designed to cope with normal fluctuations. But they are not big enough or strong enough for emergencies like this.

The Eurozone fiscal framework has some flexibility but is not designed for discretionary incentives, which will require a 10% GDP decline. If governments cannot do this on their own, it will have to be done at the EU level.

We could use financial creativity involving one or more EU institutions and the ECB together. It may take the form of a one-off fiscal facility partly managed by the ECB. The key features should be: money, not credit; direct payments to citizens, households, and companies; and yes, the obligation must be mutual. It must be supported, without restriction, by the ECB.

The biggest economic risk right now is not only the steep decline in GDP but also the constant shock that may come afterward. The primary objective of the discretionary stimulus must be to ensure that recovery is V-shaped. But there are a number of reasons to fear that it will lose power. Some of us will travel less. Some may seek a different balance between work and leisure. European carmakers can use Covid-19 as an opportune moment to reduce their structural overcapacity.

In terms of size, if you expect an economic shock of up to 10 percent of GDP, the discretionary stimulus of 5-10% of GDP is hardly disproportionate. Paying 1,000 EUR to each citizen would cost just under 3% of the Eurozone’s annual GDP. Alternatively, but with less immediate impact, the funds can be used to generate a huge investment post-crisis program.

What I have already noticed is that the debate on the future of the Eurozone is back. Not everyone will want to be embroiled in a monetary union with countries like the Netherlands, whose prime minister is ideologically against risk-sharing. This type of unwanted partnership is not sustainable.

Not only is the scale today different from the crisis in 2012. Politics has also changed. A recent survey has seen an increase in the number of Italians who consider EU membership disadvantageous – from 47% in November 2018 to 67% now. However, Italy, which is at the center of the European coronavirus epidemic, is currently experiencing more pressing problems.

But be prepared for more debate about entering and leaving the euro area as a direct result of this crisis. And this is another reason why we should think about incentives, not credits.