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60 Finance & economics The EconomistMarch 14th 2020


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benefit.Butonly15%ofItalianhouseholds
havemortgages. The neediest,saysTito
Boeri,a formerheadofthesocial-security
administration,cannottakeoutloansin
thefirstplace.Morehelpfulwouldbetoex-
tendunemploymentbenefittocoverthe
self-employed,whomakeupa fifthofthe
workforce,andtemporaryworkerswhose
contractsareduetoexpire.Foraslongas
theoutbreaklasts,benefitswillneedtobe
unconditionalandgenerous,notesFran-
cesco Giavazzi of Bocconi University. If
theyaretoostingy,peoplewillstarthoard-
ing cash, fearing that the government
couldwithdrawitssupport.
Italy’smembershipoftheeuromeans
thattacklingtheepidemicdependsnotjust
onministersinRome.TheEuropeanCen-
tralBank(ecb)couldhelplenderscontinue
to provide liquidity. As this newspaper
wenttopress,theecbwasexpectedtoloos-
enpolicy,eitherbycuttinginterestratesor
offeringbankscheapfunding tolendto
companies.But,withitsinterestratesal-
readyat-0.5%,itcannotcutratesmuch
further.Bycontrast,boththeFederalRe-
serveandtheBankofEnglandhavecut
ratesby0.5percentagepoints.
ThatmeansfiscalpolicyinEuropewill
havetodomorework.ButhereItaly’spub-
licfinancesposea complication.Govern-
mentdebtisalreadyhigh:in 2019 it exceed-
ed130%ofgdp. Theextraspendingmeans
thatItalyseemslikelytoexceedtheEuro-
peanCommission’sdeficitceiling,of3%of
gdp, thisyear.Ina signthatinvestorsare
fearingforthestateofItaly’sfinances,and
perhapsnervousofarowwithBrussels,
yieldsonten-yearsovereignbondshave
riseninrecentweeks,whilethoseonGer-
manbundshavefallen.ButifMrConte
does notborrow more now, theconse-
quencewillbeamoreprolongeddown-
turn—andthereforea higherdebt-to-gdp
ratiointhelongterm,warnsMrGiavazzi.
ThatisperhapswhytheEuropeanCom-
missionsaysitwillallowItalytobreakits
fiscalrules.Thecommissionplanstoissue
newguidelines onspendingnextweek.
Emmanuel Macron, France’s president,
wantsbolderaction.Heispressingforthe
rulestobesuspendedaltogether,andfor
memberstatestoco-ordinatespendingin-
creases;thatcould shoreupconfidence
thatEuropewilldowhatit takestocushion
theeconomicblowfromthevirus.ButMr
Macron’seffortshavesofarcometonoth-
ing,becausehiscounterpartsinGermany
andothernortherncountriesprefera wait-
and-see approach. As the epidemic
spreads,though,theadvantagesofa deci-
siveresponsewillonlybecomeclearer. 7

JobadTheEconomistislookingfora writeron
finance,BritishbusinessandtheCityofLondon.
Pleasesenda CVandanunpublished700-word
articlesuitableforpublicationto
[email protected]
forapplicationsisApril6th2020.

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ndia,whichhasfewdeclared cases of
covid-19,hasnotescapedthe turmoil in
globalmarkets. OnMarch9th its stock-
marketssufferedtheirbiggestone-day fall
inabsoluteterms ever,notwithstanding
thepositiveimpactlowoilprices should
haveona bigenergyimporter.Its problems
gobeyondpeople’shealth.
OnMarch6tha differentcrisis came to a
headwhenagovernment-controlled but
publiclylistedlender,StateBank of India
(sbi),threwa lifelinetoYesBank, once a
darling of the stockmarket, which now
faceda scrambletowithdrawdeposits. It
wasIndia’ssecondbanking scare in six
months.Itraisesquestionsabout who is
safeguardingthefinancialsystem.
Yes’sproblemsarehardlynew. As far
backas 2013 concerns wereraised by a
smallgroupofscepticsattheReserve Bank
ofIndia(rbi),thecentralbank, that Yes,
then a nine-year-old institution, had
grownatanextraordinaryrate while re-
portingonlya trivialnumberof bad loans,
eventhoughit lenttosomeofIndia’s most
troubledcompanies.
Itsnamewaswidelyunderstood to con-
trastitwithstodgieroperators too willing
tosay“no”.Investorswereentranced. Yes’s

share price went on a tear. At its peak in
2017 it was valued at $13.4bn, making its co-
founder and chief executive, Rana Kapoor,
a billionaire.
By 2019 reality had set in. The rbiforced
Mr Kapoor out of his job and new manage-
ment reported a pile of bad loans. A search
for desperately needed new capital failed to
satisfy regulators, prompting the rbion
March 5th to depose Mr Kapoor’s successor
and the bank’s board in favour of its own
caretaker regime.
A series of dramatic actions followed.
Deposit withdrawals were capped at
50,000 rupees ($670). Then sbistepped in,
agreeing to inject $330m as part of a $1.5bn
resolution plan in exchange for up to 49%
of Yes’s shares, as well as the cancellation
of $1.2bn of bonds on Yes’s balance-sheet.
Mr Kapoor was arrested and formally
charged on March 8th with money launder-
ing and corruption, which he denies. He
becomes merely the latest among once-
prominent Indian financiers to find them-
selves in the hands of the law. As the bank’s
customers lined up in the streets to with-
draw money from atms, others found their
electronic payments disrupted, a conse-
quence of Yes’s pivotal role in India’s digi-

MUMBAI
Amidtheglobalmaelstrom,India has to bail out another bank

Indianbanks

WhenYesmeans no


More a long wait than a run

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