Financial Times Europe - 23.03.2020

Monday23 March 2020 ★ FINANCIAL TIMES 3

companies. In a difficult situation that’s

the best kind of stabilisation.”

But Mr Feld said the government

must make clear beforehand when it

planned to reprivatise the sharehold-

ings in companies it has acquired during

the crisis. “The government took a stake

in Commerzbank during the financial

crisis and more than 10 years later it’s

still there. You can’t have that.”

The WSF will also make a €100bn

loan to KfW, the state development

bank, which is providing unlimited cash

to German companies facing liquidity

problems as a result of the outbreak.

The draft law on the WSF, seen by the

FT, would authorise the finance minis-

try to take out €200bn in loans to cover

the €100bn for the facility’s recapitali-

sation programme and the €100bn loan

to KfW. Combined with the new borrow-

ing in the supplementary budget, the

ministry is therefore seeking authorisa-

tion to take on a total of €356bn in debt,

about 10 per cent of Germany’s GDP.

The supplementary budget for 2020

includes plans for a €50bn hardship

fund that will dispense bridging loans to

small businesses and the self-employed

to tide them over in the coming months.

The labour ministry will relax rules

for accessing welfare payments such as

child allowance and income support,

removing means-testing rules for six

months from April 1, and will protect

struggling tenantsfrom eviction.

Wolfgang Münchau age 17p

require approval from the Bundestag.

The budget provides €3.5bn for

immediate measures to deal with the

pandemic, such as procuring protective

suits and masks, fast-tracking work on a

vaccine against the virus and repatriat-

ing holidaymakers stranded abroad.

The government’s €500bn bailout

fund will be deployed to rescue compa-

nies hit by the coronavirus and is mod-

elled on a similar facility that saved Ger-

man banks after the collapse of Lehman

Brothers in 2008. That vehicle — Soffin

— currently manages the government’s

15.6 per cent stake in Commerzbank,

which it bailed out during the financial

crisis.

The new facility, the Economic Stabi-

lisation Fund (WSF), will have €100bn

to recapitalise virus-hit companies and

take stakes in them in exchange. It will

be able to assume troubled companies’

debts to the tune of €400bn.

“We will mobilise the fund for state

investments, which was how we stabi-

lised the financial markets [in

2008-09],” Mr Scholz told FAS. “Now

it’s more about the real economy. We

need to be able to invest equity capital in

ment was able to take such far-reaching

steps now only because of the cautious

policies of the past. “We need enormous

financial firepower now. [So] it’s a good

thing that we made provisions,” he told

the Frankfurter Allgemeine Sonntag-

szeitung, adding that since the financial

crisis of 2008-09 the government had

succeeded in bringing Germany’s debt-

to-GDP ratio below 60 per cent. In Italy,

by contrast, it is more than 130 per cent.

The extraordinary measures reflect

growing government alarm at the eco-

nomic impact of the pandemic, as some

of Germany’s biggest companies halt

production and social distancing pushes

thousands of businesses to the brink of

bankruptcy. Last week, Ms Merkel said

Germany had not faced such a grave

challenge since the second world war.

Leading economists have been sup-

portive of Mr Scholz’s emergency plan.

Lars Feld, chairman of the council of

economic experts, which advises the

government, said Germany could easily

digest a sharp rise in borrowing.

“If the debt-to-GDP ratio now rises

from 60 per cent to 80 or 90 per cent,

the country’s fiscal soundness is not

questioned,” he told Die Welt.

The blueprint for the supplementary

budget for 2020, seen by the Financial

Times, authorises the finance ministry

to take out loans of €156bn, which it

says exceeds the government’s maxi-

mum credit limit by about €100bn. To

go above that level, ministers will

G U Y C H A Z A N— BERLIN

The German government is to spend an
additional €122.5bn this year to counter
the downturn caused by the coronavi-
rus as it rips up the fiscal rule-book that
has guided Europe’s largest economy for
a decade.
Angela Merkel’s cabinet is set to pass a
€156bn supplementary budgettoday
which also foresees a dramatic €33.5bn
plunge in tax revenues for this year. It
will raise a total of €150bn in extra debt.
Berlin will also set up a €500bn bail-
out fund that will take stakes in stricken
companies, in what amounts to a radical
intervention by the state in the work-
ings of the market economy.
Ministers will seek authorisation to
suspend the “debt brake”, a measure
enshrined in the constitution, which
limits newborrowing to just 0.35 per
cent of gross domestic product.
The measures proposed by Olaf
Scholz, finance minister, represent a
decisive break with the government’s
strict adherence to theschwarze Null
or “black zero” policy of balanced budg-
ets and no new borrowing.
Already, some are expressing alarm
that the new policy strays too far from
German economic orthodoxy. The pop-
ular newspaper Bild Zeitung ccused Mra
Scholzof building up a “debt mountain
of historic proportions”.
But the minister defended the meas-
ures as necessary nd said the govern-a

Berlin rips up fiscal rule-book

with billions of extra spending

‘Debt brake’ set to be suspended and €500bn business bailout fund established

A sign in Berlin tells residents to stay at home. Germany’s proposed emergency plan represents a decisive break from policy —John MacDougall/AFP via Getty Images

SA M F L E M I N G —BRUSSELS

G U Y C H A Z A N —BERLIN

The EU is aiming to strike a deal within

days on new fiscal weaponry to tackle

the fallout from coronavirus, Paolo

Gentiloni, the bloc’s economics chief,

has said.

As capitals debate joint action totackle

the fallout from the pandemic, Mr Gen-

tiloni told the Financial Times that offi-

cials were working over the weekend on

three options for intervention.

He said he believed a deal on a fiscal

support proposal could be struck in

time for a video conference call of EU

leaders on Thursday.

The first option, he said, was for the

European Stability Mechanism — the

eurozone’s bailout fund —to offer pre-

cautionary credit lines to a number of

member states.

Alternatively it could introduce nar-

rower liquidity facilities aimed at emer-

gency healthcare spending. A third

option would centre on the introduction

of so-called coronabonds, which could

be issued by an existing European insti-

tution or mechanism, including the

ESM, to raise money to fight the crisis.

“The consensus is growing day by day

that we need to face an extraordinary

crisis with extraordinary tools,” Mr

Gentiloni told the FT in a telephone

interview. “The discussion is going on

this weekend to adopt a good decision in

view of the European Council [video

conference call]on Thursday.”

Last week the European Central Bank

swept into markets with a €750bn

bond-buying package, reducing the

financing costs of countries including

Greece, Italy and France. But the eco-

nomic collapse triggered by the corona-

virus is still set to place huge strains on

eurozone governments’ public finances,

rekindling calls for greater solidarity

between euro members.

France is among the states that have

been urging more cautious capitals ot

agree to bring joint fiscal firepower to

bear. Bruno Le Maire, French finance

minister, last week warned that failure

to act in a united manner could mean

the eurozone was in danger of disap-

pearing altogether.

Mr Gentiloni said he was well aware of

the concerns in some nations hat res-t

cues risked “moral hazard”. But he

insisted the discussion was not about

the mutualisation of debt.

“We are discussing how to face what

[German] chancellor [Angela] Merkel

has rightly defined the worst crisis since

the [second world] war.”

This was raising awareness across the

continent that capitals needed to over-

come their previous divisions. “We can’t

say it is the most serious crisis since the

war and then remain with our tradi-

tional Italian or German or French or

Dutch point of view,” he said. “Our tools

were designed for a different crisis, and

gradually and consensually we

should use them, but also introduce

new tools adapted to a completely dif-

ferent crisis.”

EU officials are hoping to settle on a

rescue package at a call of eurogroup

finance ministerstomorrow evening.

But they will first need to overcome

complex legal and political obstacles.

One option would involve the ESM

offering multiple member states so-

called enhanced-conditions credit lines.

This would entail striking a deal on new

conditions attached to the loans that are

relevant to the current EU-wide, health-

related crisis. The benefit of such a

course would be that it potentially

unlocks targeted, unlimited bond pur-

chases by the ECB, helping alleviate

strains on vulnerable countries’

finances, most obviously in Italy.

The second option, Mr Gentiloni said,

would be a special new liquidity facility

from the ESM targetedat emergency

healthcare intervention, potentially

requested and used by all member

states. The third would entail the issu-

ance of so-called coronabonds, or Euro-

peanhealthbonds, Mr Gentiloni said,

which could be issued by an existing

institution such as the ESM and targeted

to the “health emergency we are facing”.

Some in Berlin argue that the ESM

could offer a credit line to Italy alone

that would have to be spent on the coun-

try’s struggling healthcare system, with

further conditions on addressing the

deficit after the crisis.

But the idea of taking a unilateral,

conditional credit line from the ESM is

politically toxic in capitals including

Rome, which is part of the reason why

EU policymakers are discussing the idea

ofmultiple credit lines o a range oft

member states.

This could help reduce the stigma that

would afflict a single member state

applying for ESM support that came

laden with heavy conditions.

The gravity of the economic damage

now being wrought in the euro area was

difficult to assess, Mr Gentiloni said,

arguing it would depend on the duration

of the outbreak. But he said scenarios

adopted by the commission just 10 days

ago were already proving too optimistic.

“This idea of a V-shape [recovery]

that you can see in the first semester of

2020 is now completely impossible,” he

said. “We have no previous analysis of

the impact of such a widespread lock-

down in major economies.”

Mr Gentiloni added: “We need not

only to reassure and stabilise the finan-

cial markets, which was the result of

the ECB decision. We also need to give

member states and the union as a

whole the strength to protect and

relaunch our economies.”

H E N RY F OY— MOSCOW

Russia is sending nine military trans-

port planes carrying medical special-

ists and equipment to Italy in an aid

convoy to the country worst affected by

the coronavirus outbreak.

The Russian Air Force planes will

deliver eight medical teams to the Prat-

ica di Mare air base south-west of Rome,

the ministry of defence said yesterday.

Emblazoned with stickers bearing the

words “From Russia with Love” in Rus-

sian, Italian and English, the nine IL-

transport aircraft of the Russian Air

Force were loaded with equipment,

goods and medical supplies at a Moscow

airfield yesterday.

By early evening, six had departed for

the air base, where Italy’s foreign minis-

ter was waiting. They will deliver the

medical teams to the country, Russia’s

ministry of defence said.

The military operation to send equip-

ment for industrial disinfectant spray-

ing and protective gear, alongside

around 100 medical specialists, was

pulled together following a Saturday

evening call, in which the Kremlin said

Italian prime minister Giuseppe Conte

had requested support fromPresident

Vladimir Putin in fighting the outbreak.

“The two leaders agreed on close

interaction in fighting the coronavirus,”

the Kremlin said, adding that the airlift

was a sign of the strong ties between

Rome and Moscow that have endured

despite EU sanctions against Russia

imposed in response to its 2014 invasion

of Crimea.

“In the afternoon I will be at the Prat-

ica di Mare [air base] to follow

closely.. the arrivals of nine flights.

from Russia that will bring new loads of

medical equipment to Italy,” the coun-

try’s foreign minister Luigi Di Maio said

on Twitter.

The eight medical teams include

“leading specialists of the Russian min-

istry of defence in the field of virology

and epidemiology, who have significant

international experience in combating

epidemics, along with modern equip-

ment for diagnosis and disinfection”, the

Kremlin said in a statement.

“Most of [the medical specialists] are

leading experts in their field. They were

directly involved in the elimination of

outbreaks of African swine fever,

anthrax, the development of a vaccine

against Ebola and plague vaccines,” it

added.

Emergency measures

Brussels debates options

for joint rescue package

Emergency relief

Russia sends medical staff and

specialist kit to aid Italy effort

Paolo Gentiloni wants tools adapted to deal with crisis —Francois Walschaerts/AFP/Getty

G U Y C H A Z A N— BERLIN
DA N D O M B E Y— MADRID
M I L E S J O H N S O N— ROME

Germany plans to ban most public gath-
erings of more than two people, except
families and members of the same
household as it joined Spain and Italy in
tighteningrestrictions on movement to
contain the spread of coronavirus.
Chancellor Angela Merkel co-
ordinated blanket restrictionsafter
some states such as Bavaria introduced
their ownlockdowns. Shortly after she
appeared at a press conference to
announce the new curbs, the chancel-
lery said Ms Merkel was placing herself
in quarantine. A doctor who had given
her a preventive pneumococci accina-v
tion on Friday evening has since tested
positive for the virus.
Steffen Seibert, Ms Merkel’s spokes-
man, said the chancellor would be
tested regularly in the next few days,
because a test at the present time would
not be conclusive. He said she would
continue to carry out all her duties while
staying at home.

The German rules are likely to be

enforced strictly. Armin Laschet, prime

minister of North Rhine-Westphalia

and the favourite to become head of the

ruling CDU party, said fines of €25,

could be imposed on anyone violating

the new restrictions, which require peo-

ple to keep 1.5m apart in public. Mr

Laschet told the DPA news agency there

would be a “zero tolerance policy

against rule breakers”.

The restrictions will require all res-

taurants to close immediately, except

for takeaway services. It also means any

personal care companies, such as hair-

dressers, tattoo studios and massage

parlours, must now close.

Spain will extend its lockdown for a

further two weeks until April 11. Health

authorities said the number of people

who have died from the virus rose by

394 in a day — reaching 1,720.

Pedro Sánchez, prime minister, said

that he would ask parliament for a two-

week extension of the state of alarm, the

legal regime that gives the government

sweeping temporary powers. Acknowl-

edging the “very tough” prospect of a

month-long lockdown, he pleaded for

“responsibility and discipline”.

He added that regional authorities

would take control of care homes for the

elderly, which have been particularly

vulnerable to the virus. In some cases as

many as 25 people have died of the virus

in one home. The army will be stepping

up its activities, in terms of guarding

critical infrastructure and providing

logistical support.

Italy, the country that has been hit

hardest by the epidemic, has banned

any internal movement across the coun-

try as a further 651 people died from the

Covid-19 outbreak in the past 24 hours,

taking the total death toll to 5,476.

Official numbersyesterday showed

that the total number of confirmed

cases in Italy rose by 10.3 per cent to

59.138, a deceleration compared to the

13.9 per cent daily increase on Saturday.

The total number of active cases, which

strips out the recovered and the

deceased also rose sharply by 9.2 per

cent to 42,681, comparedwith a 12.7 per

cent increase the day before.

The total number of deaths was lower

than the grim tally of 793 on Saturday,

which was Italy’s worst day so far for

fatalities. The ban on moving from

one municipality to another was

imposed after Giuseppe Conte, prime

minister, on Saturday evening ordered

all non-essential businesses to close

until April 3.

This is because of the period of incu-

bation between coronavirus infection

and symptoms appearing, which can

range from two to 14 days.

“If we think that the decisive moment

— the day with the highest transmission,

after which it goes down, will take place

during this next week — the critical

point for intensive care units will be one

to two weeks later,” Dr Simón said. He

added that Spain was ramping up its

testing to 15,000 to 20,000 a day.

The government hopes that the

spread of the disease will be slowed by

the extended lockdown.

But Mr Sánchez is resisting pressure

from regions such as Catalonia and Mur-

cia for Spain to ban all non-essential

economic activity.

Quim Torra, the leader of the Catalan

regional administration, calledyester-

day for an Italian-style “comprehensive

stay-at-home order”, adding: “Workers

providing key services should be the

only exception.”

Additional reporting by Martin Arnold in

Frankfurt

Quarantine. mergency planningE

Germany to impose ban on public gatherings

Strict enforcement likely as

Spain’s lockdown is extended

and cases increase in Italy

CO R O N AV I R U S

‘The day with the highest

transmission, after which

it goes down, will take

place this next week’

‘We need enormous

financial firepower now.

[So] it’s a good thing that

we made provisions’

MARCH 23 2020 Section:World Time: 3/202022/ - 18:53 User:david.owen Page Name:WORLD2 USA, Part,Page,Edition:EUR, 3, 1