Financial Times Europe - 10.03.2020

2 ★ FINANCIAL TIMES Tuesday10 March 2020

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Six inmates killed in Italian prison riot

Cases so far

Six inmates died after a riot inside a prison in the Italian

town of Modena as unrest over government measures

to control the virus’s spread erupted inside the penal

system. A number of guards in another prison were

taken hostage and later rescued as inmates expressed

anger over restrictions that include limiting visits from

families and friends. The number of confirmed cases in

Italy rose above 9,172 with 463 deaths.

Warning over potential ‘collapse’ of

health systems in developing world

Brazil’s health minister warned that the coronavirus

was threatening to trigger the “collapse” of health sys-

tems in developing nations. Luiz Henrique Mandetta, a

doctor and the health minister of Latin America’s larg-

est country, told the Financial Times: “The virus may

end up being more lethal to the health systems than to

the people.” He estimated that the outbreak could cost

Brazil’s health system between $430m and $860m.

Thailand orders airlines to carry out

medical examination of passengers

Regional lawmakers call for sweeping

quarantine as Iran casualty toll rises

Members of the Iranian parliament from a northern

province called on President Hassan Rouhani to quar-

antine their region as the national death toll grew.

Lawmakers made their plea as shortages of medical

equipment began to bite in the province of Maz-

andaran, close to Tehran. Iran’s health ministry said

that a total of 237 people had died from coronavirus in

the country with 7,161 people infected.

Sporting, summit and St Patrick’s Day

events cancelled as travel curbs tighten

Organisers continued to halt big events to contain the

virus. Dublin’s St Patrick’s Day parade on March 17 was

cancelled and the Six Nations rugby match between

France and Ireland, due to take place in Paris this Satur-

day, was postponed.

The summit between EU leaders and India’s Naren-

dra Modi was cancelled because “both parties need to

be focused on combating the disease”, the EU said.

Thailand put in place strict rules requiring airlines to

check the health of passengers from South Korea, China,

Hong Kong, Macau, Italy and Iran before allowing them to

board flights.

Saudi Arabia, meanwhile, said its citizens and foreign

residents would not be allowed to travel to or from Oman,

France, Germany, Turkey and Spain. Irish budget airline

Ryanair cancelled more flights to Italy.

111,

Resulting in 3,892 deaths by 18:00 GMT

Source: Johns Hopkins University

Read more at ft.com/coronavirus

CORONAVIRUS

ROUND-UP

CORONAVIRUS

G U Y C H A Z A N— BERLIN
DAV I D K E O H A N E— PARIS
M A RT I N A R N O L D— FRANKFURT

European leaders have stepped up their
efforts to get to grips with the economic
impact of the coronavirus, with the Ger-
man government unveiling a package of
measures to help affected companies
and €12.4bn in state investment.
Olaf Scholz, finance minister, pledged
that Germany was prepared “to do eve-
rything needed to stabilise the economy
and secure jobs”, adding that it would
“ensure that there is always enough
liquidity available for business”.
EU leaders are duetoday to discuss
their response to the virus and Ursula
von der Leyen, European Commission
president, said esterday that it wasy
considering all options.
Bruno Le Maire, French finance min-
ister, said the situation required aplan
at a European level and he expected a
“strong, massive and co-ordinated
response from Europe” fter econo-a
mists warned of aeurozone ecession.r

Giuseppe Conte, Italy’s prime minis-

ter, said Rome would “use all human

and economic resources” to contain the

outbreak and tackle what he called

“Italy’s darkest hour”.

So far the measures promised by

European capitals ave fallen well shorth

of the €200bn of spending they mobi-

lised in response to the 2008 financial

crisis and have left businesses and econ-

omists calling for more.

Germany’s measures, agreed after a

seven-hour meeting of the three parties

in Angela Merkel’s grand coalition gov-

ernment on Sunday night, are designed

to address mounting calls for help from

German business. They came only

hours after reports that the first German

had died of the disease.

The new package provides liquidity to

companies suffering a virus-related

cash crunch and expands access to a

government-subsidised scheme known

asKurzarbeit, or “short-term work”,

which is designed to avert a sharp rise in

unemployment. Berlin has also agreed

to spend an additional €3.1bn each year

between 2021 and 2024 on oads, rail-r

ways andaffordable housing.

The Association of German Chambers

of Industry and Commerce has

demanded an immediate package of

aid, including tax holidays and easier

access to state support such asKur-

zarbeitfunds, while in a recent report

the Federation of German Industries

called for a package of short-term meas-

ures as well as “medium-term, growth-

promoting investment and tax reforms”

to “restore business confidence”.

The European Central Bank s underi

growing pressure o further loosen itst

already ultra-easy monetary policy

after inflation expectations fell to a

record low. heT drop in the measure of

where investors expect inflation will be

in five years’ time o below 1 per cent fort

the first time indicates increasing scep-

ticism that the ECB can achieve its tar-

get for inflation to be close to 2 per cent.

“There’s a near-term panic element to

this but there’s also a longer-term

issue — the willingness, or otherwise, of

policymakers in the eurozone to genu-

inely do whatever it takes,” said Ken

Wattret, chief European economist at

IHS Markit.

“Italy is heading for an economic,

financial and likely political crisis and

won’t be able to make it through alone.”

Expectations of an economic crisis in

Italy have rippled through sovereign

bond markets, where the spread

between Italian 10-year bond yields and

German 10-year Bunds widened to

more than 2 percentage points ester-y

day — its highest level since last August.

Mr Le Maire told radio station France

Info that the virus could prompt the

French growth rate to fall below 1 per

cent this year, from a previous estimate

of 1.3 per cent.

France is pushing for European bank

regulators to show leniency over non-

performing loans to soften the eco-

nomic impact of coronavirus. This ech-

oes a similar call by the Italian banking

association last week.

M A RT I N A R N O L D— FRANKFURT

Christine Lagarde will on Thursday take
on her toughest test as head of the Euro-
pean Central Bank when it decides how
to respond to coronavirus fears that
have sent financial markets into a tail-
spin and threaten to cause a deep euro-
zone recession.
As the first major central bank to hold
a scheduled policy meeting since the full
impact of the virus on the global econ-
omy took shape, the ECB president
must on Thursday outline a response
after the US Federal Reserve enacted its
first emergency rate cut since the height
of the financial crisis in 2008.
Until only a few weeks ago, it had
seemed the ECB would be responding to
a brightening economic outlook. After
two years of sagging growth and infla-
tion the eurozone economy seemed to
be turning a corner at the start of this
year, with reboundingfactory orders
and improving business sentiment.
However, that was before the virus
spread rapidly through many European
countries, causing Italy to lock down a
quarter of its population across much of
its prosperous industrial north while
triggering a sharp sell-off in financial
marketsyesterday.
The virus is hitting exports to China
and threatens todisrupt the supply fo
crucial parts from China. Fear of conta-
gion, school closures, event cancella-
tions and travel restrictions on workers
are hurting tourism, airlines and leisure
companies across Europe, as well as
investor and business sentiment.
“The one billion dollar question is:
how long will it last?” said Jörg Asmus-
sen, a former ECB executive board
member who is now head of Germany’s

insurance association. “Is it temporary?

How many months before a V-shape

recovery starts?”

Ms Lagarde s also grappling with thei

question of what action the bank’s gov-

erning council could take when many

observers believe it looks alarmingly

short of options.

Unlike the Fed, the ECB has not lifted

rates from their post-2008 financial cri-

sis lows. Instead it kept cutting, most

recently in September to a record low of

minus 0.5 per cent. As Ms Lagarde her-

self said recently, this has “significantly

reduced the scope” to cut rates further.

Policymakers across Europe, includ-

ing the ECB, “still have lower rates than

the US and do not need to follow the Fed

necessarily”, said Vítor Constâncio,

former vice-president of the ECB.

“Some will do it though, despite every-

one believing that the effects are quite

meagre.”

There is already a growing debate

about theadverse effects f keepingo

interest rates negative for many years

and economists even doubt another cut

would do much to help with the virus’s

immediate impact.

“When you have negative rates, you

are effectively targeting bank reserves.

You don’t need a rate cut to allow over-

night market rates to drift lower tempo-

rarily,” said Lena Komileva, chief econo-

mist at G+ Economics.

Complicating the picture for Ms

Lagarde are the deep divisions in the

ECB’s governing council, which blew up

intoa public spat he last time it cutt

rates six months ago. Some policymak-

ers strongly oppose further cuts.

This all puts more pressure on the

ECB to take action; financial markets

are pricing in a further rate cut to minus

0.6 per cent.

Many economists believe the ECB is

likely to cut rates in response to the

sharp appreciation of the euro in

recent weeks, which threatens

to put more pressure on the

region’s export-dependent economy.

Ms Lagarde, however, has hinted that

her focus is on providing extra liquidity

to the banking and corporate debt mar-

kets. She said ina recent statement hatt

the ECB was “ready to take appropriate

and targeted measures” to address the

crisis.

A big worry for economists is that the

strain on disrupted businesses could

lead to the seizing up ofcorporate debt

markets, where levels of leverage and

overall indebtedness have been

rising.

One way to address this would be to

expand the ECB’s €2.6tn asset purchase

programme, which was relaunched last

year. The ECB could temporarily

increase its size, particularly by buy-

ing corporate paper.

Another possibility would be to bulk

up the ECB’s existing programme of tar-

geted loans to banks at sub-zero rates on

the condition that they use them to fund

lending to small businesses. Finally, the

ECB could widen the types of collateral

it accepts from banks to include more

loans to small businesses hit by corona-

virus disruption.

“Financial strains that worsen the

downturn are a major risk,” said Adam

Slater, lead economist at Oxford Eco-

nomics. “Central banks may have to

become directly involved in providing

bridge financing to key firms and sec-

tors, and in pushing banks to do like-

wise.”

He added that this might require a

suspension of EU fiscal rules to allow

member states to run higher deficits.

D O N W E I N L A N D— BEIJING

A call from a top Chinese official to

“educate” Wuhan residents on how to

show gratitude to President Xi Jinping

is turning into a public relations disas-

ter for the Communist party.

Chinese internet users unleashed a tor-

rent of anger on social media after Wang

Zhonglin,Communist party secretaryof

Wuhan,last week said it was “necessary

to carry out gratitude education among

the people of the whole city” in order for

them to express thanks to Mr Xi and the

Communist party.

However, the backlashonline forced

officials to scrub the original media

reports on “gratitude education” from

news sites.

“Next the government should apolo-

gise to people as soon as possible. It’s

time to reflect and find people who are

responsible for today’s situation,” Fang

Fang, a well-known author and former

director of the Hubei Writers’ Associa-

tion, wrote on Weibo, the social media

platform.

“What should I be thankful for?”

wrote another Weibo user, noting that

he had not received his government

benefits and was having to pay high

prices for food during the crisis. “Please

go back to wherever you came from,

OK? Thanks.”

The criticism came as ideo footagev

circulated onlinethat appeared to show

Wuhan residents shouting from their

flats at vice-premier Sun Chunlan, who

was on a tourdemonstrating the success

of quarantine measures in the area.

“It’s fake, it’s fake!” residents

screamed from their balconies, as

the entourage moved between the

buildings.

Residents in Wuhan and Hubei prov-

ince — an estimated 55m people — have

been under strict quarantine since late

January.

The Communist party has unleashed

a propaganda campaign after allowing

some space forcriticism f its handlingo

of the crisis. It hascast Mr Xi as the only

person capable of leading the country

through a health crisis that has killed

more than 3,000 in mainland China and

infected over 80,000.

The Communist party’s publicity

department has even published a book

lauding Mr Xi and the party as global

leaders in the response to the outbreak.

But the effort has been marred by

blunders.

“Internal directives from press con-

trol officials now suggest this has been a

full-blown public opinion crisis for the

party, and that the wound was self-in-

flicted,” China Media Project, a Hong

Kong-based research programme

focused on the Chinese press, said of the

“gratitude education” incident.

“The ‘gratitude education’ narrative

has already backfired,” said King-wa Fu,

an associate professor at the University

of Hong Kong’s Journalism and Media

Studies Centre.

The Communist party has been strug-

gling tocontrol the narrative. Mr Wang

was appointed as Wuhan’s top official in

February after his predecessor, Ma Guo-

qiang, was fired followingcriticism of

his early handling of theoutbreak.

The death in February of Wuhan doc-

tor Li Wenliang, who was censuredfor

reporting the outbreak, led to a public

outcry. Many social media users in

China have held up Li’s death as a sym-

bol of mismanagement by authorities.

The party, however, has sought to use

him as a representative of China’s self-

less fight against the outbreak.

Additional reporting by Xinning Liu in

Beijing

Eurozone. onetary policyM

ECB set to unveil

crisis response

Financial markets are pricing

in a rate cut to minus 0.6%

at the meeting on Thursday

Europe tackles economic contagion

Germany pledges €12.4bn state investment while France calls for ‘co-ordinated response’

Virus and

oil price war

Editorial

Comment,

page 8; Opinion,

page 9; Lex,

page 10

See Companies

See Markets

PR failure

China stirs backlash with call for Wuhan to show thanks to Xi

Screening:

French patients

are checked

in Bordeaux.

Below, Christine

Lagarde

Georges Gobet/AFP/Getty

VIP visit:

President Xi

Jinping, centre,

talks to staff at

the Academy of

Military Medical

Sciences in

Beijing

last week

Ju Peng/Xinhua/AP

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