How to Help Firms After the COVID Crisis?

The COVID-19 pandemic is causing growing financial problems for many companies and businesses that could need being restructured and even threaten their continuity. In this paper, the current situation is reviewed, based on some recent studies that approximate the effects of Covid on the accounts of Spanish companies. Next, the reasons why public intervention could reduce the welfare costs caused by the pandemic through its impact on companies and the self-employed are reviewed, as well as the main policy tools available, the use that has been made of them in Spain and other countries and some of its limitations. Finally, some ideas are advanced on possible measures to consider in three areas: (a) the promotion of market mechanisms for recapitalization, (b) direct aid to the most affected companies and sectors, and (c) improving insolvency proceedings. These are three types of complementary measures that, properly designed and executed, could mitigate the effects of the current crisis, reducing the number of closures of viable companies and facilitating the quick and orderly liquidation of those that are not viable to contribute to the optimal reallocation of resources.