The Globe and Mail - 13.03.2020

B4| REPORTONBUSINESS O THEGLOBEANDMAIL| FRIDAY, MARCH 13, 2020

OPINION&ANALYSIS

DILBERT

T

he plunging markets of
Thursday proved what ev-
eryone already knew. Cen-
tral banks are running out of am-
munition and can’t do much to
prevent an economic downturn.
It’s every country for itself as the
novel coronavirus smashes its
way through one economy after
another.
Christine Lagarde, the new
President of the European Cen-
tral Bank who replaced Mario
Draghi last November, pretty
much said as much on Thursday
when the ECB launched an ap-
parently underwhelming re-
sponse to the economic damage
unleashed by the virus and its re-
sulting COVID-19 disease.
Even as she was speaking, the
European (and North American)
markets were plunging. Almost
all the major stock indexes were
down about 9 per cent, with
some indexes falling more than
in the 2008 financial crisis.
U.S. President Donald Trump’s
European travel ban, and the re-
lentless spread of COVID-19
through Europe, could take some
of the blame for the wreckage.
The yields of the 10-year bonds
of Italy, the epicentre of the Eu-
ropean COVID-19 infections,
soared (bond prices and yields go
in opposite direction), raising the
borrowing costs of the EU coun-
try that can least afford it.
“We are not here to close
[bond] spreads, that’s not the
function of the ECB,” Ms. Lagarde
said, leaving economists wonder-
ing exactly what the ECB’s job is
if not to stabilize the debt mar-
kets.
Hers was not a whatever-it-
takes moment. There has only
been one such moment in recent
ECB history. It came in 2012,
when the financial system and
national debt crises were con-
spiring to burn down the euro
zone.
Mr. Draghi promised to do
“whatever it takes” to save the
economy.
He used a series of radical
emergency measures, which
would include quantitative eas-
ing – the mass buying ofgovern-
ment bonds – to snuff out the

flames. It’s no exaggeration to

say he saved the euro from de-

struction.

To investors’ surprise, the ECB

did not cut interest rates Thurs-

day, setting it apart from the cen-

tral bank pack. Since last week,

the Bank of England, the Bank of

Canada and the U.S. Federal Re-

serve each cut rates by a hefty

half a percentage point.

The ECB left its base rate in-

tact, at negative 0.5 per cent. It

seems the ECB reasoned that

pushing rates further into nega-

tive territory would do nothing to

cure the supply shock brought on

by the coronavirus crisis, or make

the banks any healthier; banks

hate negative rates.

The ECB did help the banks

boost their liquidity in an effort

to support the supply of credit to

the economy.

It is launching a new program

of cheap longer-term loans for

banks and sweetened another

bank-loan package that will be

offered for as little as minus 0.75

per cent – below the ECB’s depos-

it rate.

The ECB also ramped up its

quantitative easing program,

which will now see monthly

bond purchases, including corpo-

rate bonds, of €33-billion ($51.4-

billion), up from €20-billion. The

higher purchases will help gov-

ernment financing operations,

although a bigger program would

have been more effective.

Remember, central banks

can’t go broke. They alone issue

currencies and can buy as many

bonds as they wish.

The overall stimulus package

clearly wasn’t enough to slow the

market sell-off or contain the un-

folding economic damage. To be

fair, there wasn’t more the ECB

could do, other than boost the

quantitative easing program

more than it did. That option is

still on the table.

The ECB’s message was: We’re

almost tapped out, over to you fi-

nance ministers.

Ms. Lagarde pleaded for gov-

ernments to get their acts togeth-

er to launch “ambitious and co-

ordinated” fiscal stimulus pack-

ages to prevent the economy

from barreling into recession

(Germany and Italy were on the

verge of recession even before

anyone had heard of COVID-19).

Mr. Draghi would also beg gov-

ernments to smarten up, to little

avail. During most of his years at

the ECB, from 2011 to 2019, gov-

ernments did little to make their

economies more competitive

and were obsessed with austerity,

a policy that would prove disas-

trous. It made the poor poorer,

stoked the rise of populist lead-

ers and eroded public services,

such as hospital care.

While the worst of austerity is

over, it still lingers, especially in

Germany, whose spending pro-

grams are allergic to deficits.

The postcrisis years turned the

European political map on its

head as governments every-

where were voted out of office by

angry voters, hollowing out the

traditional centre-right and cen-

tre-left parties.

Unless governments pull to-

gether on the fiscal front, mass

anger could return.

Ms. Lagarde could have inject-

ed a little more brio into her

stimulus package on Thursday,

but not much more. She’s right.

The ECB saved Europe eight years

ago. It doesn’t have the power to

do it again. Over togovernments.

ECBcan’tsaveEuropefromanotherdownturn

TheEuropeanCentral

Bankistappingout–

itisnowupto

governmentstofightoff

theeconomicdamage

coronavirusiscausing

ERIC
REGULY

OPINION

European Central Bank President Christine Lagarde speaks on a television broadcast in Frankfurt,Germany, on Thursday. To investors’ surprise, the

ECB has not slashed interest rates, setting it apart from many other central banks.RALPHORLOWSKI/REUTERS

Wearenothere

toclose[bond]

spreads,that’s

notthefunction

oftheECB.

CHRISTINE LAGARDE

PRESIDENTOFTHE

EUROPEANCENTRALBANK

ROME

M

aple Leaf Sports & Enter-
tainment chairman Larry
Tanenbaum is getting far
too much practice at making de-
cisions under pressure.
Last spring, the owner of the
National Basketball Association’s
Toronto Raptors stayed calm and
cool when gunshots rang out
during his outdoor speech at the
team’s victory celebration. This
week, Mr. Tanenbaum led the
unprecedented move to get
ahead of a global pandemic by
suspending games in three ma-
jor professional sports leagues,
first as chairman of the NBA’s
board ofgovernors, which can-
celled games late Wednesday,
then as one of 31 National Hock-
ey League governorsand an
owner of Major League Soccer’s
Toronto FC, when both leagues
suspended play on Thursday.
There is no playbook for a
shutdown that translates into at
least $2-million a game in lost
revenue on basketball and hock-
ey at MLSE, which Mr. Tanen-
baum co-owns with telecom
companies Rogers Communica-
tions Inc. and BCE Inc. Along
with the financial hit, the teams
are dealing with disappointed
fans, broadcasters left scram-
bling for content and advertisers
without audiences. While Mr. Ta-
nenbaum was unavailable for
comment Thursday, fellow
NBA owner Mark Cuban put

events in perspective.

“This is much bigger than bas-

ketball,” said Mr. Cuban, after his

Dallas Mavericks played the last

NBA game for the foreseeable fu-

ture on Wednesday night. The

outspoken technology executive,

who has been fined repeatedly in

the past for public criticism of

NBA calls, fully supported shut-

ting down the season. “This is

not a situation where you fake it

till you make it, or try to sound

or act important. The NBA has

hired people with expertise in

those areas,” Mr. Cuban said. “I

think the NBA made the right de-

cision.”

TSN, the radio and TV sports

network owned by BCE, sounded

the same sort of support for team

owners. In a statement Thursday,

TSN spokesman Rob Duffy said

the broadcaster agreed with the

leagues’ decisions to suspend

games as pro sports comes to

grips with COVID-19. Mr. Duffy

said the network is taking direc-

tion from local health authorities

when it comes to the safety of its

production crews and “we re-

main in close discussions with

our advertising partners as the

situation unfolds.”

Financially, pro sports owners

are one group who can take the

pain of a pandemic. The majority

of North American teams are

owned by deep-pocketed entre-

preneurs or large companies.

Empty arenas will have little im-

pact on their net worth or bot-

tom line. Mr. Tanenbaum made

his fortune as a private equity in-

vestor in construction and cable

television, and came to sports

out of passion rather than for

profits.

While Rogers has extensive

holdings in the entertainment

industry – along with the MLSE

stake, the company owns base-

ball’s Toronto Blue Jays and radio

and television stations – the divi-

sion’s results have minimal im-

pact on the bottom line. Rogers’

entire media unit only accounted

for 13 per cent of the company’s

$15.2-billion in sales last year, and

just 2 per cent of the company’s

$6.2-billion in earnings before in-

terest, taxes, depreciation and

amortization (EBITDA).

Montreal-based Quebecor Inc.

is also a major broadcaster, but

in announcing financial results

on Thursday, chief executive

Pierre Karl Péladeau said: “This

[COVID-19] situation is not ex-

pected to have a material finan-

cial impact on the corporation,

although our sports and enter-

tainment segment could be im-

pacted if the situation worsens in

Quebec.” At Quebecor, cable and

cellphone businesses generated

$1.8-billion of EBITDA last year,

compared to $7-million of EBIT-

DA from sports and entertain-

ment.

Rather than playoff wins and

championships, professional

sports owners may set the tone

in coming weeks for the way they

deal with the unexpected human

consequences of a major health

crisis. After Wednesday’s game,

Mr. Cuban said Dallas’s NBA

team was taking steps to ensure

arena employees, many of whom

are hourly workers, receive fi-

nancial support during the shut-

down.

Mr. Cuban said: “This is a pan-

demic, a global pandemic, where

people’s lives are at stake and I’m

a lot more worried about my kids

and my mom who’s 82 years old,

and talking to her and telling her

to stay in the house, than I am

about when we play our next

game.”

Professionalsportssetsthetoneonpandemic

ANDREW
WILLIS

OPINION Thisismuchbigger

thanbasketball.This

isnotasituation

whereyoufakeittill

youmakeit,ortryto

soundoract

important.

MARK CUBAN

OWNEROFTHE

DALLASMAVERICKS