impact of the virus does not add much to the diminishing pot of global confidence.
At a macro-economic level, it is easy to see what could be done. Those “policy tools” are a fiscal boost and a
monetary boost: you cut taxes and/or raise public spending, and you cut interest rates and/or pump money
into the system. While the scope and need for such action varies from country to country, with monetary
policy in Europe controlled by the European Central Bank, there is a strong case for co-ordinating the
response. You get a bigger bang for your buck if you all do it together.
As it was, the US Federal Reserve decided to push ahead anyway. Cutting interest rates between meetings
is an emergency act and it will take a few days to see whether it settles things or whether it suggests to
people that there is a lot worse economic news to come.
The trouble is that broad macro-economic measures only take you so far. The coronavirus hits different
countries, and different parts of their economies, in very different ways. Travel and tourism are particularly
hard hit. Northern Italy has been clobbered. Big events are being cancelled. But some other sectors,
housebuilding for example, seem pretty much unscathed. Some activities actually get a boost: home
delivery services in China have soared as people have shunned the shops.
We don’t need to be too worried about Ryanair. We do need to be worried
about small hotels that rely on a good tourist season
The key point made by Mark Carney, outgoing governor of the Bank of England, was that the hit is large
but temporary. In that sense, it is different to the 2008 crisis which left lasting damage. So the challenge is
to help businesses and individuals through a downturn that you know will be temporary, but you don’t
know how deep it will be.
Here the behaviour of the banks will be enormously important. We know some of them behaved
disastrously – wickedly, actually – after the 2008 crash, pushing businesses unnecessarily into bankruptcy.
Now they have a chance to show they have learnt their lesson. There may be a role here for the central
banks in supporting them. I suspect the problem will be much for small and medium-sized businesses than
large ones. I don’t think we need to be too worried about the future of Ryanair. We do need to be worried
about small hotels that rely on a good tourist season to keep going.
How do you get the banks to do the right thing? As far as Britain is concerned it helps that the government
still controls the Royal Bank of Scotland group, or NatWest, as it is being rebranded. It is still the largest
bank for businesses in the UK. The relationship between the bank and its main shareholder is a hands-off
one and should remain so. But if the bank mishandles this crisis its principal shareholder will inevitably
carry some of the blame.
This is not just about banks and their relationship with their customers. It is about the relationship between
governments and the societies they are responsible for overseeing. People rightly expect governments to
take charge, particularly in matters of public health. The response to the weak G7 statement shows they
expect a more proactive reaction on the economic front too. But there are limits to the effectiveness of top-
down action when combatting a one-off crisis. The detail will matter enormously, and governments are bad
at detail.
The private sector has to do the detail. Businesses have to find ways of keeping going through the downturn
without undermining their ability to recover when demand returns. They have to treat their employees,
customers and suppliers fairly. They have to learn from the disaster in all sorts of ways, including creating