Friday6 March 2020 ★ FINANCIAL TIMES 9

Opinion

outbreak in Wuhan province told a

different story. Mr Xi suddenly looked

distinctly fragile. Even autocrats need

legitimacy, and legitimacy requires a

level of public confidence.

Mr Trump has most to lose. Coronavi-

rus cannot be written off as “fake news”.

The president has neither the manner

nor the temperament to recast himself

as a national leader at a time of emer-

gency. Competence has never been a

strong suit. His strategy to win a second

term has been built around the premise

of a strong economy. Without the co-or-

dinated multilateral action he so fre-

quently scorns, a pandemic could see

the US and the world tip into recession.

The worldhas been deglobalising.

This latest disruption of cross-border

supply chains may see another turn of

the ratchet. The hope, however, must be

that the defeat of coronavirus shows the

worth of intelligent and honest govern-

ment and dispels the populist canard

that taking back control requires a fear-

ful retreat behind national frontiers.

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precaution and fuelling a panic is a fine

one. The authorities in the Italian region

of Lombardy, where coronavirus has

taken serious hold, have been accused

by the Rome government of excessive

testing of potential victims. In Japan,

there is more than a suspicion that polit-

ical leaders have imposed severerestric-

tions on tests o as to conceal the extents

to which the virus has spread.

The politicians’ best weapon is hon-

esty. Past experience says voters are

perfectly prepared to live with the hard-

ship and loss caused by what many

might call an act of God. But they also

expect political leaders to show grip,

competence and candour. It is easy to

see why Messrs Trump and Johnson

may find themselves in trouble.

Coronavirus is blind, however,

between elected politicians and auto-

crats. Not so long ago, president Xi Jin-

ping was being styled as China’s emper-

or-for-life. His power seemed as close as

it gets to absolute, even in a ruthlessly

authoritarian state. The force of the

public anger at official attempts to con-

ceal, and thenplay down, the initial

explosions. Such emergencies stir strong

public emotions. Everyone knows that

the first duty of the state is to safeguard

the security of its citizens. Governments

cannot be blamed for the virus but the

way they respond to the crisis will never

be more closely scrutinised. Perceptions

will often count for as much as reality.

Getting it right in such circumstances

is not easy. The politicians are flying

blind. The worse case scenarios of the

epidemiologists are just that; the risk is

that they are seen as forecasts. In 2009,

the British government predicted that

up to 65,000 UK citizens could be killed

by that year’s swine flu pandemic. In the

event the official figure was less than

500, though some later estimates sug-

gested it might be a little higher.

The line between intelligent

his health minister, Matt Hancock. Mr

Trump may well be in deeper trouble.

The virus has reached more than

60 countries. It is now impossible to

track the source of each infection. Brit-

ain’s National Health Service has classed

the outbreak as the highest level of med-

ical emergency. The evidence so far sug-

gests the mortality ratewill turn out to

be low — below 1 per cent — but health

systems in many nations could become

overwhelmed.

The economic consequences are obvi-

ous enough. A simultaneous shock to

supply (all those closed Chinese facto-

ries) and to demand (safer to stay at

home than to go shopping) will seri-

ously damage growth. The OECD says a

long and severe outbreak could halve its

forecast global growth rate for 2020 to

1.5 per cent.Interest rate cuts uch ass

that by the US Federal Reserve will have

only a limited countervailing impact.

Governments must also be ready to

loosen fiscal policies.

Whether slowdown turns to recession

will depend on how fast and far the virus

spreads during coming months. In

countries where it takes hold, the focus

of governments will turn quickly from

the present containment effort to one of

delay and mitigation, in the hope that

summer weather in the northern hemi-

sphere will slow it down. Scientists are

unsure of how effective this strategy will

prove and doubtful of producing a vac-

cine before next winter.

The result is a minefield for politicians.

If the Covid-19 epidemic follows the pre-

sumed course, there will be some loud

S

o much for the sanctity of

national sovereignty. Viruses

do not respect state frontiers;

nor do they pay heed to

the anti-immigrant banners

waved aloft by a generation of populist

leaders. The worldwide spread of the

coronavirus as instead given eloquenth

expression to the stubborn fact of inter-

national interdependence.

Donald Trump’s America First policy

has offered scant protection against the

outbreak. This is also the president who

has been pressing for cuts in US funding

for the World Health Organization, the

UN body co-ordinating the inter-

national response. All in all, Mr Trump

has been flat-footed in his attempt to

dismiss the crisis as “a problem that’s

going to go away”.

Until this week Boris Johnson was

striking the same insouciant pose. The

prime minister is busy severing Britain’s

ties with the EU. Brexit will not keep the

virus at bay. Mr Trump’s wall along the

US-Mexican border and Mr Johnson’s

promise to “take back control” from the

EU are turning out to be expensive acts

of powerlessness. Mr Johnson has been

lucky. He has been rescued so far by the

intelligent planning and presentation of

Coronavirus

lays a political

minefield

There will be some

loud explosions if the

disease follows the

presumed course

I

nvestors in the gyrating US stock

markets might be forgiven for feel-

ing seasick this week. On Wednes-

day, share pricesrose more than 4

per cent after the Super Tuesday

primaries and approval by the House of

Representatives ofan $8bn package ot

combat the coronavirus outbreak.

It is easy to see the reason for cheer:

$8bn is far more than the $2.5bn ini-

tially suggested by the White House,

and it will be mostly directed to hospi-

tals and medical research. However,

before investors become too excited,

they should note what is sadly missing

in this bill: a commitment to plug the

holes in America’s medical and social

safety net that have been exposed by the

disease, known as Covid-19.

This matters. If these holes go

unfilled, and the virus keeps spreading,

this could exacerbate the potential eco-

nomic pain. And, as US Federal Reserve

officials know only too well, it is foolish

to rely on monetary policy to cushion

this blow — notwithstanding Tuesday’s

decision to cut rates by 50 basis points.

To understand why America’s weak

safety net matters, consider an issue

that has sparked hot debate in recent

years: the rise of the so-called “gig”

economy, in which workers are paid

piecemeal for contingent work, often

linked to tech platforms, such as ride-

hailing and food delivery.

Tracking the size of contingent activ-

ity has always been notoriously hard.

However, economists estimate that

about aquarter of American workers

currently do gig work,considerably

higher han in previous years, andt

nearly half of these rely on it as their pri-

mary source of income.

In some ways, the gig economy

has been positive for US growth: the

creation of new tech-related gig jobs

has helped to push unemployment

down to50-year lows. It also seems to

have kept a lid onwage growth and

inflation, enabling the Fed to keep rates

low. But the dark side of this arrange-

ment is insecurity. Contingent compen-

sation is unpredictable. Gig workers

generally lack access to company-

funded unemployment insurance, sick

payand medical benefits. In Europe,

this is offset by public safety nets; not so

in America, for the most part.

Well-paid gig workers, such as soft-

ware engineers, can cope with this inse-

curity by purchasing private insurance.

But many gig workers are low paid and

sacrifice this to join the pool of27.5m

Americans ho lack health insurance.w

Others buycheap policies hat requiret

them to pay the first several thousand

dollars of medical bills themselves.

This creates obvious medical risks

with the coronavirus. The cost of testing

and treatment will deter some Ameri-

cans from seeking care if they fall sick.

Tales of sky-high bills are buzzing in the

media. A Miami man says he received a

$3,270 bill or a voluntary coronavirusf

test; an American evacuated from the

outbreak’s epicentre in Wuhan China

received a$3,918 bill or mandatoryf

quarantine in San Diego. The lack of sick

pay may encourage unwell gig workers

to keep working. And many low-paid gig

jobs cannot be performed at home.

Delivering a pizza or driving an Uber car

still requires a human.

If the coronavirus sparks a lasting

downturn in travel, tourism and the

retail sector, it will hit low-paid contin-

gent workers particularly hard. Indeed,

United Airlines ut domestic flights byc

10 per cent and the threat of more could

shatter confidence. This matters in a

country where so many households live

pay cheque to pay cheque that nearly

one-third f Americano families could

not meet an emergency $400 bill from

existing resources.

What can be done? Congress could

make coronavirus testing and quaran-

tine, and perhaps treatment, free for all

US residents who lack insurance. New

York state has taken a first step by waiv-

ingco-payments for testing. But much

more is needed. Laurence Boone, chief

economist at the OECD, has suggested

that governments should use “tempo-

rary direct transfers” of cash to support

vulnerable households, if the virus

spreads. That would deliver far more

impact and reassurance than the vague

pledge of$1bn in loan subsidiesto small

companies in Wednesday’s bill.

But American leaders must start a

proper debate about creating a better

longer term safety net for gig workers.

California is doing this n a piecemeali

and imperfect manner. However, fed-

eral action is needed. Congress could

start by considering some sensible pro-

posalson portable benefits rom senatorf

Mark Warner and the Aspen Institute.

But none of this was included in this

week’s House bill. And Fed chairman

Jay Powell knows rate cuts are not

enough but is wary of wading too

directly into policy matters. Therein lies

a potential tragedy.

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If Covid-19 sparks a lasting

downturn in travel, it will

it low-paid contingenth

workers particularly hard

Gig workers are particularly vulnerable to health risks

A

rmin Laschet, Friedrich

Merz andNorbert Röttgen

are all white, married,

Catholic fathers of three

from North Rhine-West-

phalia, with an ear for music.

They are alljostling to succeedAngela

Merkel asGermany’s chancellor. They

also went to the same law school at the

University Bonn, in the 1980s. I know,

because I was there with them.

Our law school was one of the top

three nationwide. But as West Ger-

many’s capital, Bonn, was also the only

place to go for young conservatives

intent on vaulting onwards to a political

career. As a milieu, it was provincial,

tribal, and intensely competitive. It also

goes a long way towards explaining the

current moment of power competition

in Germany’s centre-right. Not that I

knew the trio of candidates socially —

although I crossed paths with them in

the faculty building, and we must have

sat in some classes together.

I was an outsider: female, in a student

body where distinctly less than half of

the student body were women (by the

time we sat for our finals, that had dwin-

dled to one-quarter). Also a liberal in a

majority conservative student body

with a tiny hard-left opposition.

My male fellow-students were of a

recognisable type. All of them seemed to

wear a uniform of striped shirts,

broadwale corduroy trousers, tweed

jackets with leather elbow patches, and

wingtip shoes. Some, the sons of senior

civil servants, generals or ambassadors,

exuded self-confidence and entitle-

ment. Others made up for their lack of

social status with even more seething

ambition. Most had done their obliga-

tory military serviceafter high school.

Many had chosen to serve an extra six

months to earn a reserve officer grade;

the snobs aimed for intelligence train-

ing. A rite of passage was the debating

courses of the conservative Konrad

Adenauer Foundation, where political

hopefuls honed their speaking skills.

But the real key to success was joining

a fraternity: either the duelling kind

(yes, really — scars and all), or Catholic

and non-duelling. The politics of both

were conservative-to-reactionary. They

inducted their fledgling members into

social life through balls (girls required)

and drinking evenings (absolutely no

girls). Their alumni could be relied

upon to help smooth the ascent of young

career entrants. These vertical net-

works were called “Seilschaften”, like the

rope teams in mountain climbing.

MessrsMerz, Laschet nd Röttgena

had all joined the Christian Democrats

(CDU) by the time they were 18. Mr

Merz did military service in the

armoured artillery. Mr Laschet met his

wife in the Catholic church choir, edited

a church paper, and ran a church pub-

lishing house. Both Mr Merz and Mr

Laschet were members of non-duelling

fraternities: Mr Merz belonged to

Bavaria, Mr Laschet to Ripuaria. (No

similar membership is recorded for Mr

Röttgen.) The alumni lists of Bavaria

and Ripuaria include cardinals, cabinet

ministers, professors, doctors, business

leaders, lawyers.

All three have gone on to careers in

journalism, business, and politics on

their own merits. But their origins in a

tightly knit male West German conserv-

ative establishment of a certain time do

show.

There is Mr Merz’s boundless self-

assurance, and his conviction that he

can root out support for the hard right

Alternative for Germany by taking AfD-

lite positions; Mr Laschet’s paternal

demeanour and network of Catholic

notables; Mr Röttgen’s announcement

— still not acted upon — that his running

mate would be “a woman”.

Ah yes, women. The networks, the

“rope teams”, none of those support

systems were available to female law

students. So we learnt to fight on a play-

ing field that was tipped against us.

A decade later, women began pushing

open doors: at law firms, in boardrooms,

in politics. When Angela Merkel became

chancellor in 2005, that still seemed like

a miracle. In 2018, when she was suc-

ceeded as party head by Annegret

Kramp-Karrenbauer, and in the follow-

ing year, when her fellow conservative

Ursula von der Leyen became EU Com-

mission president, it briefly seemed that

women might have equalised at the very

top of politics.

But the truth is that women continue

to be woefully under-represented in

most areas of German public life —

including the CDU. Its new leadership

contenders give no indication that they

think that might be a problem.

In a fragmenting political landscape,

with serious competition from the

Greens on one side and the AfD on the

other, this question might turn out to be

a key test for its future. And theirs.

The writer is Kissinger Chair at the Library

of Congress and Senior Fellow at the Brook-

ings Institution

Their origins in a tightly

knit, male West German

conservative establishment

of a certain time do show

The fratboys vying to lead Germany

BUSINESS

Gillian

Tett

C

apital spending good; cur-

rent spending bad. That is

the clear message of the UK

government’s public finance

rules. They are proving a

problem for the chancellor,Rishi Sunak,

as he prepares next week’s Budget.

In November, after a furious row with

10 Downing Street,then chancellor

Sajid Javidannounceda government led

by Boris Johnson would balance the cur-

rent budget within three years, thereby

ensuring borrowing is only for net capi-

tal expenditure. Subsequentindepend-

ent nalyses have shown that followinga

these rules will be very difficult. There is

hardly any room or more day-to-dayf

public spending without tax rises.

The justification for running a bal-

anced current budget s that today’si

population pays its way for the services

it consumes now but future generations

fund the infrastructure they will rely

on. It is neat but, as many have noted,

the distinction is deeply flawed.

Why should paying the salaries of fur-

ther education staff be considered less

of an investment in the UK’s future than

building the HS2 high-speed railway?

Isn’t current spending on policing and

public safety vital for future economic

prosperity? What is the use of gleaming

hospital equipment if there is no money

to pay staff to use it? There are no satis-

factory answers to these questions, cast-

ing doubt on the wisdom of setting a rule

to balance the current budget.

Mr Sunak will be tempted to tear up

the promise that was enshrined in the

Conservative party manifesto. Before he

takes the plunge, though, he should con-

sider how his actions fit with two dirty

secrets of fiscal rules that the Treasury

has guarded for almost a generation.

First, even though chancellors from

Gordon Brown to Mr Javid liked the

“borrow only to invest” rule because it

allowed them to insist they were not

passing the bill for day-to-day consump-

tion to voters’ children, the words are

mostly for public consumption. Officials

like the idea because, if adhered to, the

public finances will be broadly sustaina-

ble in the long term. There is little to dis-

like about a rule that achieves fiscal sus-

tainability and appeals to the public.

Second, the main use of fiscal rules

within the Treasury is not to ensure the

sustainability of public finances but to

control the activity of spending depart-

ments. As former Treasury minister

David Gauke said t a Resolution Foun-a

dation event last month, “When you are

in negotiations with spending depart-

ments, you do use those fiscal rules to

ensure that tough choices are made”.

These two secrets are not evidence of

a “deep state” frustrating the wishes of

politicians but genuine efforts to ensure

Britain has its public finances in the

right place. They should not be seen as

indispensable. If the chancellor ditches

the current budget balance rule or

fudges the definition of capital spend-

ing, it is not the end of the world. The

Institute for Fiscal Studies went too far

in saying any modification, “would

surely undermine any credibility

attached to fiscal targets set by this gov-

ernment”. Credibility is derived from

sensible rules fostering long-term budg-

etary sustainability, not sticking to rules

that do not serve the national interest.

Mr Sunak should also ensure suffi-

cient spending is allocated towards tem-

porary and targeted policies to address

the health and economic consequences

of coronavirus. No chancellor should let

fiscal rules damage public health.

None of this means the chancellor

should forget the benefits of tight rules

for public spending control. The level of

borrowing that is sustainable without

debt or interest service burdens rising is

around 3 per cent of national income.

Britain has an ageing population that

will raise the demand for public serv-

ices. With close to full employment,

weak productivity growth and Brexit

uncertainties, Britain’s economic pros-

pects are, at best, mediocre.

It is fine to kill the latest set of fiscal

rules but remember, the UK cannot bor-

row its way to a brighter future.

[email protected]

On fiscal rules,

UK Treasury

has two

dirty secrets

What is the use of gleaming

new hospital equipment

if there is no money for

staff to operate it?

ECONOMICS

Chris

Giles

GLOBAL AFFAIRS

Philip

Stephens

EUROPE

Constanze

Stelzenmüller

MARCH 6 2020 Section:Features Time: 3/20205/ - 18:32 User:charlotte.middlehurst Page Name:COMMENT USA, Part,Page,Edition:USA , 9, 1