The Economist - 03.14.2020

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.

I

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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