Tuesday 7 April 2020 ★ FINANCIAL TIMES 17

Opinion

shareholders what they are doing and

solicit their support. Some of HSBC’s

Asian investors have already threatened

action over its dividend suspension.

For US banks, this is the moment to

live up to the roundtable’s promises of

2019. Jamie Dimon, chairman of
      JPMorgan Chase, said yesterday that his
      bank could suspend its dividend for the
      first time in its history if the virus
      triggers a sharp recession. For UK
      banks it is a golden opportunity to
      re-establish a level of trust among inves-
      tors and with government that might
      eventually lead to book values being
      reflected in their heavily discounted
      share prices.
      These are big asks of a sector that pre-
      fers to buy rather than give goodwill. It
      will require turning on its head a me-
      first culture. But it’s the right thing to do.
      It would also finally allow this most
      important of sectors to legitimately
      claim to be doing God’s work — whoever
      or whatever their god might be.

The writer’s latest book is ‘The Bank That

Lived a Little: Barclays in the Age of the

Very Free Market’

should take. First, accept more risk and

less profit from lending. That means

lowering credit standards and reducing

end-of-term borrowing charges in order

to help businesses get through the crisis

and rebuild in the reconstruction phase.

Second, waive bonuses, particularly

in the markets business where traders

are making hay. As happened after

2008, distress in the rest of society has

led to volatile markets and, by many

accounts, exceptional first-quarter trad-

ing profits in fixed income and equities.

Paying bonuses under these circum-

stances would be completely unaccept-

able to the public and put investment

bankers back where they were in 2008.

This sacrifice should be industry-led

from Wall Street and extend through the

boardroom and trading floors. Practi-

tioners should put up their hands now

for a voluntary zero bonus. For people

whose main job satisfaction comes from

the money they make, this is counter-

cultural. But, if they do not show leader-

ship, boards or eventually regulators

should step in and do it for them.

Third, and contingent on waiving

bonuses, banks must explain clearly to

these principles were endorsed in the

Good Business Charter, a joint enter-

prise between the CBI employers’ feder-

ation and the Trades Union Congress.

This tragic environment is a crucible for

these good intentions and, as so often,

banks are in the mix.

It is a crucial moment for the indus-

try’s reputation. Businesses do not have

a future if they are universally despised,

a message that will not be lost on the

banks. Prior to this crisis they were,

arguably, in the early stages of societal

rehabilitation. To build on that, they

now need to put public interest above

self-interest. Without that, banking will

remain a pariah industry; with it, banks

can repair much of the reputational

damage caused by the financial crisis.

There are three steps that banks

position and the banks, having initially

appeared slow footed, must now deliver.

Dividends have been a further source

of irritation between the two sides.

Major US banks were noticeably absent

from the first wave of corporations to

waive dividends. In the UK, it took Bank

of England pressure — which the banks

apparently resisted — to halt payouts to

shareholders. Moreover, in contrast to

companies operating in some other sec-

tors and despite nudges from the BoE,

scarcely a peep has been heard from the

banks on bonuses. This most emotive of

subjects has the potential to blow up

again into a hugely divisive issue.

The crisis and how the banks respond

is a real test of the “business with pur-

pose” movement that gathered momen-

tum in 2019. Its most public statement

came from America’s Business Round-

table. In enlarging corporate objectives

from shareholder value to stakeholder

value, signatories from 181 US compa-

nies spoke of investing in employees,

exceeding customer expectations, serv-

ing as good partners to other companies

and supporting the communities in

which they worked. In the UK, many of

J

ust as they did during and after

the global financial crisis,

banks run the risk of appearing

tone-deaf in their response to

Covid-19.

Back then, exaggerated claims to be

doing God’s work, premature exhorta-

tions to move beyond remorse, and cyn-

ical gouging of customers sat badly with

taxpayer-backed rescue packages. The

jarring sound of bankers behaving badly

was amplified by their determination to

cling on to bonuses while the rest of the

world endured the decade of austerity

that their actions had caused.

The coronavirus crisis offers them a

chance of redemption. It has not been a

great start. There has been tension

between banks and governments in the

US and UK over the administration of

state-backed loan schemes for business.

Both governments are clarifying their

I

n September 1940 Winston

Churchill, whose name the UK gov-

ernment often invokes, addressed

MPs on the need for the House of

Commons to keep meeting, albeit

in secret, despite air raids on London. “I

felt that members would be offended if

any course were taken which suggested

for a moment that we would shirk our

duty for reasons of personal safety. And

there is... the incongruity of our

ordering government departments and

factory workers to remain at work while

we ourselves did not assemble.”

The Blitz spirit is much cited in this

crisis, but by the time the British parlia-

ment returns from its elongated Easter

break it will have been absent for a

month. MPs were initially happy to get

away from a chamber almost ideally

designed to spread a virus. Some argued

they were setting a good example by

closing. It is now clear to many, how-

ever, that the lack of effective scrutiny of

government has a cost, and that if health

workers and supermarket staff can go to

work, they too should find a way.

By next Monday the government

must decide whether to extend the lock-

down. Parliament will be away for that

decision. The same week may see UK

deaths and infections peak. Parliament

will not be sitting. The prime minister,

Boris Johnson, has been hospitalised

with the virus, his role being partly filled

by the foreign secretary, Dominic Raab.

Again, parliament has no input.

Ministers are struggling to form an

exit strategy for easing lockdown

restrictions and rebuilding the econ-

omy. While party leaders are being

briefed on the crisis, parliament is

silent. The same point can be made of

the shambles around testing capacity

and protective equipment. Scrutiny

cannot be left solely to the media. Even

in a crisis, democratic politics functions

on the premise that accountability

improves outcomes.

Some other parliaments have closed

but many legislatures have tried to con-

tinue. The Scottish parliament sat last

week, though with much reduced busi-

ness. The French National Assembly is

still in, albeit truncated, session. Italy’s

lower house is sitting once a week. The

European Parliament is planning an

emergency plenary next week.

This is not a mere point of tradition.

Before the Commons rose, it was sus-

tained calls by Tory MPs for support for

the self-employed that hastened Treas-

ury work on an aid package. MPs, often

best placed to hear of problems on the

ground, are being bombarded by small

businesses about the deficiencies of that

assistance. A rough session in parlia-

ment is a key way to securing the gov-

ernment’s attention and action.

Even some ministers are uneasy with

the length of the recess. One noted:

“Many people have virtually no savings

and if they don’t get their pay packet

they are quickly in trouble. We have

seen a 30 per cent increase in domestic

abuse and vulnerable children are not

going to school. Parliament is the right

place to raise these concerns.”

Ministers are trying to find ways to

keep MPs involved. The paymaster gen-

eral, Penny Mordaunt, holds a daily call

to brief MPs and hear their concerns.

But she is not even in the cabinet.

Some parliamentary committees are

still holding hearings by videoconfer-

ence, but even here scrutiny can fall foul

of party politics. Committee chairs were

enraged last week when government

whips tried to force through their pre-

ferred candidate as chair of the power-

ful liaison committee, which routinely

questions the prime minister. It has not

met since the election because parlia-

ment blocked the government’s choice

of Bernard Jenkin as its chair. The whips

are now saying that if MPs want to ques-

tion Mr Johnson during recess, then the

liaison committee must meet under Sir

Bernard. Furious committee heads held

a conference call on Friday to find alter-

native plans.

The squabble highlights why many

want parliament’s return. The Speaker

has asked for plans for virtual sessions

and rule changes to allow more distanc-

ing in the Commons chamber. This may

become known as the Zoom parliament.

Electronic voting, perhaps by text mes-

sage, is being studied. The instant publi-

cation of voting lists means there is little

fear of a vote being hacked.

Yet, in what may be a key fortnight,

the UK is not being served by parlia-

ment. The government is not seeking an

earlier recall but the new opposition

leader, Keir Starmer, should request

one. It is not just that parliament’s

absence looks bad, though it does. In

matters of both literal and economic life

and death, the people’s voice is not being

heard. The government, which is bound

to make mistakes in these most difficult

times, is not being scrutinised or tested.

In this crisis, the centre of British

democracy is missing in action.

[email protected]

Even in a crisis, democratic

politics functions on the

premise that accountability

improves outcomes

Banks should now prove they really do ‘God’s work’

Philip

Augar

Lenders need to put public

interest above self-interest.

Without that, they will

remain a pariah industry

T

he US work force has never

before been so vulnerable

to a pandemic. Nearly 60

per cent of American work-

ers are employed in hourly

jobs or are self-employed. In the 1970s,

many more would have been well paid

unionised workers in factories with

decent benefits. But there has been a

shift from high wage, high-hour goods-

producing jobs to low wage, low-hour

service jobs.

Roughly one-third of today’s produc-

tion and non-supervisory employees —

the worker bees — made their living in

restaurants, bars, stores, hotels, and

other service jobs. These Americans

have seen very weak wage growth. Now,

many are earning nothing at all. The

past two weeks, about 10m people filed

for unemployment benefits.

Whether they can recover depends on

what policymakers do now, and do next.

The $2tn fiscal stimulus package

increased unemployment benefits, and

provides for business loans that would

allow many workers to remain on pay-

rolls — if their employers make the

effort, and it’s not too late. One very real

threat is that small, independent shops

and businesses close forever.

Since 1997, about 75 per cent of indus-

tries in the US have become more con-

centrated, leaving workers with fewer

employment options. That in turn lim-

its their bargaining power for wages and

benefits. The virus may accelerate this

process. Small and medium-sized enter-

prises will have the hardest time keep-

ing the lights on in the face of this sud-

den stop in revenues. Larger companies

that can access the capital markets are

better placed to weather this temporary

shock and may expand to replace them

after the lockdowns are over.

But it is not just a question of income.

Most hourly and self-employed workers

do not receive healthcare benefits. A

recent Gallup poll found that more than

one-quarter of Americans deferred

medical or dental care last year because

they could not afford it. That number

could rise if insurance companies

increase premiums to help cover the

cost of battling the global health crisis.

One study estimates premiums for indi-

viduals and employers could jump by

up to 40 per cent in 2021. Insurance

through Obamacare is an option for

some, but the Trump administration is

still trying to kill that programme.

The US Congress is trying to do more

to help these Americans than was done

after the 2008 global financial crisis.

Bills passed so far pay for coronavirus

testing, reimburse businesses with

between 50 and 500 employees for paid

sick leave, extend cheques to millions of

Americans, beef up unemployment

insurance and set up ways for the Fed-

eral Reserve to back loans to SMEs. But

these measures are designed to carry

individuals and companies through a

few months until economic behaviour

goes back to “normal”. That assumes

the virus can be contained soon, and the

economy will spring back. They do not

address lasting disparities.

Policymakers should use this oppor-

tunity to broaden, not trim, health ben-

efits. They should consider work-shar-

ing programmes like those in Germany

and the Netherlands, where workers

whose hours are cut in a downturn

receive tax credits or unemployment

insurance. The US government could

also guarantee all or some workers’ pay

during the crisis, as in the UK. National,

rather than local, paid leave and sick

pay policies should be a priority.

Before the virus struck, the divided

political climate made it hard to find

ways to help struggling workers, even

though the issue had come up in the

Democratic presidential primary. I fear

this may be another wasted crisis.

Yet emergencies have a way of light-

ing a fire under policymakers’ feet:

council housing in the UK was born out

of the first world war, and US social

security emerged from the Depression.

Stranger things have happened.

The writer is a senior fellow at Harvard

Kennedy School

The US must

act to protect its

most vulnerable

workers

Policymakers should use

this opportunity

to broaden, not trim,

health benefits

Parliament has been missing in action

the ESM could attach very light condi-

tions to the loans, simply specifying that

all the money has to be spent on dealing

with the direct consequences of Cov-

id-19. The Dutch have also proposed dis-

aster aid — grants not loans — and that,

too, should be considered.

Once the pandemic is over, Europe

c a n re t u r n t o t h e d e b a t e ove r

eurobonds. I have my doubts whether

they will ever be politically sustainable.

But, if they are tried, they should be

backed by giving the European Com-

mission a larger budget, underpinned

by a dedicated EU tax. Armed with

more capital and its own resources,

the commission could then borrow from

the markets.

That kind of major step should only

be taken once national politicians have

made and won the argument with their

voters. The alternative method — using

a crisis to force through a controversial

and irreversible change — is often

praised in Brussels. But, for its own

future, the EU has to do better than that.

[email protected]

turn to populist, anti-European parties.

In Britain’s Brexit debate, two of the

most potent arguments made by the

Leavers were “we never signed up for

this”, and “Brussels is draining us of

money”. It would be naive to believe

that those arguments can never work in

continental Europe. Anti-EU parties

have already made strong gains across

northern Europe in recent years.

The mistake made by the advocates of

eurobonds is to argue that they are the

only way — or even the best way — of

sharing the financial burden of the pan-

demic. In reality, setting up the legal

structures for eurobonds would proba-

bly take several years. By contrast, there

is already a European Stability Mecha-

nism up and running that can lend to

crisis-hit countries.

The Italians and the Spanish reject the

ESM because it makes loans that would

add to their debt burdens, and that

come with conditions attached. They

fear that the anguish of a pandemic

could now be supplemented by the hor-

rors of a Greek-style austerity pro-

gramme. But this is a natural disaster so

are in the south.” The northerners are

alert to any sign that they are being

sucked into permanent, large transfers

of cash to heavily indebted EU partners.

They are justifiably concerned that the

current anguish is being used to push

forward ideas that they have already

rejected, many times over.

When I pointed out to one particu-

larly passionate supporter of eurobonds

that the Germans and Dutch had always

been assured by their leaders that the

creation of the euro would not lead to a

transfer union, he responded, with a

mixture of exasperation and amuse-

ment: “That was always bullshit.”

But if political leaders renege on long-

standing promises because they were

“always bullshit”, they should not be

particularly surprised if voters then

right. But eurobonds are the wrong solu-

tion. Rather than saving the EU, they

could end up killing it.

Advocates of eurobonds stress the

potentially disastrous effects on public

opinion in southern Europe if northern

Europeans fail to respond while the Ital-

ians and Spanish live through a tragedy.

But northern Europe also has to con-

sider politics and public opinion.

The mutualisation of debt within the

EU has always been the reddest of red

lines for the Germans, the Dutch, the

Austrians, the Finns and others. If it is

pushed through now — in an atmos-

phere of crisis — it could set a time-

bomb under the EU.

The danger that southern Europeans

will feel abandoned by the north has to

be set against the risk that northern

Europeans will, at some later date, feel

exploited by the south. The Italians and

the Spanish rightly resent being carica-

tured as lazy, spendthrift southerners.

But the opposite caricature of the rich,

egotistical, arrogant northerners is also

unfair — particularly when it is larded

with references to Nazism and accusa-

tions of immorality.

Voters in the Netherlands and Ger-

many also feel squeezed by long years of

austerity. And both countries have also

been badly hit by coronavirus. Hospitals

in the Netherlands are on the brink of

running out of critical care beds.

The longer-term fears of the northern

Europeans are also legitimate. As one

Dutch friend put it to me with pardona-

ble exaggeration: “We know that the

savings are in the north and the debts

T

here is just one question:

Are we together or are we

not? So said Bruno Le

Maire, France’s finance

minister, as he pleaded with

other EU nations, above all Germany, to

demonstrate solidarity in the face of the

coronavirus pandemic.

For many in southern Europe, soli-

darity means one thing above all:

eurobonds. France, Italy, Spain and six

other EU countries have thrown their

weight behind the creation of joint

financial instruments by the EU, as the

best possible response to the pandemic.

The arguments they make are both

political and economic. Eurobonds are

meant to prevent some of the worst-af-

fected countries, such as Italy and

Spain, being sunk by new debts. They

are also intended to show Europeans

that “we are all in this together” — ban-

ishing the early disastrous images of

China delivering medical aid to Italy,

while the EU sat on its hands. Some

Italian and Spanish politicians warn

that if the EU does not act, their coun-

tries could lose faith in the European

project forever.

The urge to demonstrate European

solidarity and alleviate suffering is

Eurobonds

are not

the answer

Mutualisation of debt

within the EU has always

been the reddest of red

lines for the Germans

BRITAIN

Robert

Shrimsley

global affairs

Gideon

Rachman

SOCIETY

Megan

Greene

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