The EconomistMarch 14th 2020 Finance & economics 671benefit. But only 15% of Italian households
have mortgages. The neediest, says Tito
Boeri, a former head of the social-security
administration, cannot take out loans in
the first place. More helpful would be to ex-
tend unemployment benefit to cover the
self-employed, who make up a fifth of the
workforce, and temporary workers whose
contracts are due to expire. For as long as
the outbreak lasts, benefits will need to be
unconditional and generous, notes Fran-
cesco Giavazzi of Bocconi University. If
they are too stingy, people will start hoard-
ing cash, fearing that the government
could withdraw its support.
Italy’s membership of the euro means
that tackling the epidemic depends not just
on ministers in Rome. The European Cen-
tral Bank(ecb)could help lenders continue
to provide liquidity. As this newspaper
went to press, theecbwas expected to loos-
en policy, either by cutting interest rates or
offering banks cheap funding to lend to
companies. But, with its interest rates al-
ready at -0.5%, it cannot cut rates much
further. By contrast, both the Federal Re-
serve and the Bank of England have cut
rates by 0.5 percentage points.
That means fiscal policy in Europe will
have to do more work. But here Italy’s pub-
lic finances pose a complication. Govern-
ment debt is already high: in 2019 it exceed-
ed 130% ofgdp. The extra spending means
that Italy seems likelyto exceed the Euro-
pean Commission’s deficit ceiling, of 3% of
gdp, this year. In a sign that investors are
fearing for the state of Italy’s finances, and
perhaps nervous of a row with Brussels,
yields on ten-year sovereign bonds have
risen in recent weeks, while those on Ger-
man bunds have fallen. But if Mr Conte
does not borrow more now, the conse-
quence will be a more prolonged down-
turn—and therefore a higher debt-to-gdp
ratio in the long term, warns Mr Giavazzi.
That is perhaps why the European Com-
mission says it will allow Italy to break its
fiscal rules. The commission plans to issue
new guidelines on spending next week.
Emmanuel Macron, France’s president,
wants bolder action. He is pressing for the
rules to be suspended altogether, and for
member states to co-ordinate spending in-
creases; that could shore up confidence
that Europe will do what it takes to cushion
the economic blow from the virus. But Mr
Macron’s efforts have so far come to noth-
ing, because his counterparts in Germany
and other northern countries prefer a wait-
and-see approach. As the epidemic
spreads, though, the advantages of a deci-
sive response will only become clearer. 7Job adThe Economistis looking for a writer on
finance, British business and the City of London.
Please send a CV and an unpublished 700-word
article suitable for publication to
[email protected]. The closing date
for applications is April 6th2020.I
ndia, whichhas few declared cases of
covid-19, has not escaped the turmoil in
global markets. On March 9th its stock-
markets suffered their biggest one-day fall
in absolute terms ever, notwithstanding
the positive impact low oil prices should
have on a big energy importer. Its problems
go beyond people’s health.
On March 6th a different crisis came to a
head when a government-controlled but
publicly listed lender, State Bank of India
(sbi), threw a lifeline to Yes Bank, once a
darling of the stockmarket, which now
faced a scramble to withdraw deposits. It
was India’s second banking scare in six
months. It raises questions about who is
safeguarding the financial system.
Yes’s problems are hardly new. As far
back as 2013 concerns were raised by a
small group of sceptics at the Reserve Bank
of India (rbi), the central bank, that Yes,
then a nine-year-old institution, had
grown at an extraordinary rate while re-
porting only a trivial number of bad loans,
even though it lent to some of India’s most
troubled companies.
Its name was widely understood to con-
trast it with stodgier operators too willing
to say “no”. Investors were entranced. Yes’sshare price went on a tear. At its peak in
2017 it was valued at $13.4bn, making its co-
founder and chief executive, Rana Kapoor,
a billionaire.
By 2019 reality had set in. The rbiforced
Mr Kapoor out of his job and new manage-
ment reported a pile of bad loans. A search
for desperately needed new capital failed to
satisfy regulators, prompting the rbion
March 5th to depose Mr Kapoor’s successor
and the bank’s board in favour of its own
caretaker regime.
A series of dramatic actions followed.
Deposit withdrawals were capped at
50,000 rupees ($670). Then sbistepped in,
agreeing to inject $330m as part of a $1.5bn
resolution plan in exchange for up to 49%
of Yes’s shares, as well as the cancellation
of $1.2bn of bonds on Yes’s balance-sheet.
Mr Kapoor was arrested and formally
charged on March 8th with money launder-
ing and corruption, which he denies. He
becomes merely the latest among once-
prominent Indian financiers to find them-
selves in the hands of the law. As the bank’s
customers lined up in the streets to with-
draw money from atms, others found their
electronic payments disrupted, a conse-
quence of Yes’s pivotal role in India’s digi-MUMBAI
Amid the global maelstrom, India has to bail out another bankIndian banksWhen Yes means no
More a long wait than a run2