16 ★ † FINANCIAL TIMES Tuesday 7 April 2020
Euro and its institutions
are part of the problem
No one can fault Guy Verhofstadt’s
ambition (Letters, April 3). In addition
to a €750bn European Central Bank
programme, his wish list includes
unconditional European Stability
Mechanism funding and a €1tn
issuance of mutualised bonds backed
by new European resources (ie new
taxes). These extraordinary and far-
reaching demands seem to signal Mr
Verhofstadt’s belated recognition that
the euro system is failing. The fixes and
patches required to keep the tottering
structure upright are becoming ever
more extreme.
The ECB was founded on the belief
that “one size fits all” in monetary and
fiscal policy. Two decades later the
evidence is conclusive. It doesn’t.
Countries are best placed to weather
the looming Covid-19 economic crises
when they control their own policy
levers. The euro and its institutions are
part of the problem, not the solution.
But, no matter how deep the euro hole
gets, there is Mr Verhofstadt at the
bottom, still dig, dig, digging away.
Ian Hirst
Emeritus Professor of Finance,
Heriot-Watt University,
Edinburgh, UKMasks don’t stop people
touching their faces
Gillian Tett writes a compelling column
regarding the sensible difference in
Asian attitudes to wearing face masks
compared with much of the rest of the
world (“Why wearing masks may be
the way forward”, April 4). I must,
however, disagree with her on the point
that masks “remind you to avoid
touching your face”.
I was at Zurich airport towards the
end of February and for the first time
noticed a number of non-Asian people
wearing masks. Virtually all these
mask-wearers were fiddling with them
or pulling them down to eat food.
Similarly, having to brave several
journeys on the London Tube a
fortnight ago, I noticed that those
wearing masks were generally (though
not exclusively) constantly adjusting
their position, twiddling with their
hair; and they also thought nothing of
smearing their mobile phones all over
their ears and the side of their faces.
The problem is that wearing masks
generally makes your nose run,
artificially stimulating the need to give
those nostrils a wipe. Unless you’vealready got a cold, this seems rather
counterproductive. If you do have a
cold or are just sneezing, then yes,
please put a mask on.
I think public health emphasis
should have been on wearing gloves
alongside just not touching things. I
have obsessive-compulsive disorder
with regards to public transport at the
best of times. I certainly don’t use it as
an opportunity to guzzle food from my
hands or feed children. As for
Transport for London’s tannoy
broadcasts regarding holding on to the
handrails... well, they’re just
patronising. If you can’t balance on an
escalator, use a lift.
David Pilkington
Amos & Bailey,
London SW1, UKWimbledon has shown
how to treat loyal fans
I read with interest the Big Read article
“A contest for survival” (April 6),
about whether the sports industry can
survive the coronavirus shutdown. I
would like to add to the debate about
sport, its coverage and its supporters.
The last month has seen
disappointing sentiments being
expressed in the media due to the
postponement or cancellations of
football, cricket and Formula One
events. While this is frustrating, the
higher income earners are now
beginning to understand to some
extent what a large proportion of the
country has had to endure for the last
20 years. Since the millennium a
variety of sports have sold their
premier events to satellite television,thus enabling only a smaller audience
to enjoy the live spectacles. The
majority have been denied such a
privilege and their complaints have
generally gone unanswered.
Wimbledon, however, is one of the
few major sports events that has kept
loyal to its fans, with the tennis
remaining on terrestrial television.
And it is through this free access that
more youngsters will take up the game
after being inspired by the likes of
Andy Murray. I hope the current
furlough period allows sporting bodies
to take stock and remember that the
survival of their discipline is dependent
on the masses. The All England Lawn
Tennis Club is aware of this; let us hope
others can follow suit.
Rajiv Radhakrishnan
Pinner, Middx, UKHSBC made the rational
commercial response
It is understandable that HSBC’s Hong
Kong retail investors should feel
aggrieved at the bank’s recent decision
to suspend its dividend under pressure
from the Bank of England (“HSBC
investors threaten to sue lender over
dividend cut”, April 6) However, it
would be an error of judgment on their
part to bring threatened legal action
against the bank or its directors over
this matter.
In general a company’s ordinary
shareholders have no enforceable legal
right to receive regular dividends. The
only recognised exceptions to this are
where dividends are denied for a
manifestly non-commercial reason, or
where the complaining shareholders
are faced with effective financial
starvation due to an inability to
liquidate their positions in response.
In the case of HSBC and the other
major British banks right now, neither
of those conditions are present. On the
contrary, HSBC’s dividend suspension
is a rational commercial response to
unprecedented circumstances, and the
bank’s retail shareholdings remain
fully liquid in nature.
There is no denying that Covid-
has been a terrible misfortune for
world markets. Ultimately, though,
such risks are part of the package that a
company’s ordinary shareholders sign
up for in return for reaping the rewards
from more prosperous times. HSBC’s
retail investors would be well advised
to bear this in mind right now.
Prof Marc Moore
Chair in Corporate/Financial Law,
University College London, UKDonald Trump’s approval ratings
among Republicans were sky high
when he said coronavirus was just like
the flu — and later when he said it
wasn’t. The US president’s ratings
were stellar when he flirted with
reopening America by Easter — and
when he reversed that position. High
when his experts said Americans
should wear masks, and just as solid
when he said he wouldn’t wear one.
Independents and Democrats, who
gave him high marks early on for his
handling of the pandemic, have since
soured on him. But the same is not
true of Republicans. A recent opinion
survey from pollster Morning Consult
put his approval rating among
Republicans at 87 per cent on March
31 to April 1 — the same as from
March 17-20, a lifetime away in terms
of the current pandemic.
His approval rating among
independent voters (who could be
crucial to his chances for re-election
to a second term) fell from 51 per cent
to 43 per cent over the same period.
The “rally round the flag” effect that
often boosts a president’s ratings
during a crisis has evaporated, the
polling group said. But Republicans
appear to be sticking with him.
As a 64-year-old diabetic asthmatic,
in the category “at risk” for Covid-19, I
take the president’s delays and
vacillations personally. But whatever
my views, it’s clear a very large chunk
of my country — including key parts
of the Midwest, where I live — holds a
different opinion. I wanted to hear
them, so I turned to Republicans Ihave interviewed since Mr Trump
became president in 2016, focusing on
Wisconsin, which has postponed its
presidential primary election to June.
“The view from rural Wisconsin is
very different,” says Chris Goebel, a
63-year-old Republican veteran from
Elkhorn, a town of just under 10,
people. “Detroit and Chicago and New
York are completely different than my
town. Out here in the counties we still
have areas where there aren’t any
reported cases. There should be a way
to do things differently in the cities v
the counties.” The closure of churches
worries him. “I am genuinely
concerned about whether this is an
erosion of our constitutional liberties.
I’m not a sheep. How long can you
deny freedom of assembly and
religious expression?”
Wasn’t the president slow to take
the pandemic seriously, and couldn’t
his tendency to contradict medical
experts on live television lead to more
loss of life, I ask Mr Goebel? “I dismiss
better than 80 per cent of what I read
and see and hear. There is so much
sensationalism that I don’t know what
the truth is,” he says. Mr Trump
understands that overreaction also
has risks, he adds. “He didn’t want to
do a ‘the sky is falling’. He didn’t want
to create panic,” he says.
Erin Decker, a Republican owner of
an auto repair shop and county board
supervisor in Kenosha county, a
mostly suburban area outside
Milwaukee, says she doesn’t wear a
mask or gloves when she shops for
groceries. She pushes back when Icriticise Mr Trump’s slowness to act.
“One of the problems was that the
communist government of China
wasn’t being truthful,” she says, so US
officials didn’t know how serious the
situation was. She applauds Mr
Trump working with the private
sector, including big auto companies
such as Ford and General Motors, to
convert their production to medical
supplies.
Bill Jaeck, a Republican in nearby
Racine county, weighs the costs of the
lockdown. “If they are going to track
Covid-19 deaths they should also track
suicides because that’s what’s going to
happen if we keep the brakes on the
economy; people will die from the
stress.” Chris Budzisz, a Republican-
turned-Democrat who is an expert on
Midwest politics at Iowa’s Loras
College, points to a “fealty, a visceral
and emotional attachment” among
supporters to Mr Trump. “A notion
that ‘He’s my guy’ coupled with a
notion that what I hear bad about my
guy is all fake news.” That will
weaken, he says, only if “you see
unemployment numbers similar to
Depression times”.
I don’t agree with these views, but
they are not a fringe. Many Americans
hold them and nothing will be gained
by pretending they don’t exist. When
the pandemic is over we will have to
find a way to live together again.
Blaming each other for Covid-
deaths will just make things that
much harder.[email protected]Trump’s support
rallies round
his flag in the
Midwest
Wisconsin
Notebook
by Patti Waldmeir
The coronavirus pandemic highlights
the decisions that doctors sometimes
have to make regarding life and death
(“Doctors are being asked to play God”,
Philip Stephens, April 3). However, this
challenge has always been
commonplace for those involved in
intensive care. Unfortunately, in the
eyes of lay people the issue is often
framed as doctors assuming
supernatural power and deciding who
should live or who should die, but in
reality there is a more sublime
interpretation.
Modern medical practice is highly
effective at prolonging life using
advanced technologies and often
prolonging suffering at the same time.
As a result, there are many patients
eking out a form of existence waybeyond the time when they might have
died of natural causes. One only has to
look at long-term care facilities and
intensive care units to see examples of
this and to wonder about the delicate
balance between purpose and futility.
Sadly, neither collective human
efforts nor the provisions of healthcare
systems are going to be sufficient to
prevent many patients dying from
Covid-19. Furthermore, it will become
apparent in the most unfortunate cases
that some patients are not going to
survive, whatever is done for them. It is
in this broader context that doctors
have to weigh their harrowing
decisions.
People talk about “withdrawal of
care” and build complex ethical
arguments around this concept. Theterminology is unfortunate because
often the most caring human gesture in
these circumstances is letting go by
discontinuation of artificial life-
prolonging measures. Compassionate
doctors will engage patients and their
families in discussion of these
principles. When these discussions go
well, they lead to far more comfortable
and dignified endings to a human life.
God has big shoes to fill. Even
doctors are incapable of doing that! By
avoiding interventions that artificially
prolong life, doctors are, in fact, leaving
God in charge.
Christopher B Cooper
Professor Emeritus of Medicine and
Physiology,
David Geffen School of Medicine,
University of California, Los Angeles, USLetting go is often the most caring gesture
Letters
TUESDAY 7 APRIL 2020Email:[email protected]
Include daytime telephone number and full address
Corrections:[email protected]
If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: [email protected]Corrections
cA chart accompanying a Lex note
about superyachts on April 6 wrongly
included a vessel called the History
Supreme, which had previously been
reported as a fake. We apologise for the
error.cThe US economy shed 701,000 jobs in
early March, not 710,000 as wrongly
stated in a front-page article on April 4.OPINION ON FT.COM
John Thornhill
Covid-19, tech revolution and environmental
threat may spark a wave of innovation
http://www.ft.com/opinion‘I think my sense of smell is
returning’The British government has never paid
off the £1,200,000 loan that created
the Bank of England in 1694. In
exchange it gave the merchants who
provided the money the exclusive right
to print banknotes against this debt,
giving birth to the central bank and
much of the architecture behind the
world’s financial system. Today, as pol-
icymakers promise to do “whatever it
takes” to prop up their economies in
the face of coronavirus, central banks
are facing calls to print money to
finance government spending directly.
In times of emergency, particularly
war, central banks have often handed
freshly printed banknotes to govern-
ments. The fight against resultant
inflation was postponed until after any
crisis. Despite the pandemic, the world
is not yet in that position today. There
is no need, for now, to relax the frame-
work of independent, inflation-target-
ing central banking. Yet this kind of
monetary financing should be a tool
available to policymakers, if needed.
Without limits, allowing a govern-
ment to finance itself by creating
money can lead to hyperinflation. But
these risks can be manageable: the
quantitative easing of the past decade,
despite predictions, has not lifted infla-
tion above the main central banks’ 2
per cent targets. The money pumped
into rich-world economies has been
met by increased demand, perhaps
permanently, for precautionary saving.
There is no clear distinction between
quantitative easing and monetary
financing. Central bankers say asset
purchases under QE are temporary,
meaning the newly-created money will
one day be removed from the economy.
But it is hard to bind the hands of their
successors, who could one day make
them permanent. Either way, the effect
is to lower the cost of government bor-
rowing. Buying the bonds only after
they have been sold to private investors
still frees up funds for new issues.
Recent QE programmes, in fact, look
increasingly likely to become perma-
nent. Central bankers were unable to
complete a much-discussed pro-
gramme of “normalising” monetary
policy between the financial crisis and
today’s crash. They are not going to be
able to do so any time soon. The scale of
previous schemes means the Bank of
Japan — which holds government
bonds worth more than 100 per cent of
Japanese national income — may never
be able fully to unwind its purchases.
The difference between QE and
direct monetary financing is mostly
one of presentation: whether asset pur-
chases are deemed temporary or per-
manent. This matters: credibility and
messaging are important features of
central banking. An opinion article this
week by Andrew Bailey, the Bank of
England governor, that ruled out mon-
etary financing may have been largely
conceived to convince international
investors that there is little reason to
fear keeping funds in sterling.
If trends restraining inflation go into
reverse, central bankers have tools to
combat rising prices, whether through
raising interest rates or unwinding QE.
The present crisis may even be defla-
tionary and central banks’ targets are,
with the exception of the European
Central Bank, symmetric in promising
to tackle inflation that is both below
and above their stated goal.
The scale of today’s downturn means
even the most direct monetary financ-
ing, such as “helicopter money”, or
handing cash to the public, should
remain an option. This will require co-
ordination with democratically elected
officials, who are responsible for the
public finances. The debate should not
be over whether monetary financing
can happen — in QE, it already is — but
over keeping the process under control
via independent central banks.Quantitative easing programmes may be here for the long term
Printing money is a valid
response to virus crisis
Covid-19 has confronted the world with
its biggest challenge in living memory.
It is necessary now to manage both the
disease and its economic impact. This
is no simple trade-off. On the contrary,
bringing the disease under control is a
necessary condition for bringing the
economy back to life. But time is also
limited. Governments must use what
they now have wisely and effectively.
Economies are going over a cliff. Last
week’s 6.7m in US unemployment
claims was an order of magnitude big-
ger than ever before. The OECD sug-
gests that each additional month of
shutdown will lower growth this year
by two percentage points. Unless the
cessation of activity is brief, this will be
the biggest contraction in history.
The implication, however, is not that
lockdowns should be abandoned, but
that they must be made to work as fast
as possible. Letting the disease rip,
instead, risks collapse of health sys-
tems and a loss of life comparable to
those of world wars. A large proportion
of leading economists agrees that a
steep contraction is a price worth pay-
ing to secure control over infections. In
any case, economies would not be
humming in the absence of the lock-
downs. Many people would lock them-
selves up voluntarily, instead.
Once we take into account the loss of
life and all the other damage done by an
unchecked pandemic, the lockdowns
are wise. But tight containment cannot
go on for very long without unbearable
damage. That damage must be miti-
gated, wherever feasible, by ensuring
that everybody has adequate incomes
and viable businesses survive. Aware of
this, governments with fiscal space
have created a host of new pro-
grammes. Central banks have also
intervened aggressively.
Now the focus of policymakers must
turn to the need to mount a global
response to this pandemic. The chain is
only as strong as its weakest link.
Yet it is vital that the authorities also
achieve at least four other concrete
things during the lockdowns: the
upward curve of infections must be
brought right down; health systems
must be made capable of handling the
flow of patients until cures or vaccines
are found; capacity for testing, tracing
and quarantine must be created, in
order to keep a post-lockdown return
of the virus in check; and ways must be
created to keep the vulnerable safe.
Governments should seek to achieve
these four essential objectives within
very few months. They are unlikely to
have very much more time than this
before the economic costs and social
unrest become unbearable, although
the more generous and effective the
support they can offer, the longer they
will have. In managing the return to
work, governments should also seek
advice from economic and business
experts, as they do on health aspects.
Even if governments of high-income
countries do achieve all this, that will
not mean a return to normal. They will
still have to control cross-border move-
ment of people from countries that fail
to control the pandemic. Many vulner-
able residents will still have to stay at
home until a cure or vaccine is availa-
ble. Much effort will still continue to be
necessary, to manage the global spread
of the virus and help counter the dam-
age to the most vulnerable countries.
Yet now come the crucial weeks.
Governments have rightly decided to
close their economies down. But they
must make the sacrifices worthwhile.
Having to do this again would be agony
for societies. There is but a brief period
in which to gain secure control over the
disease and so be able to reopen the
economy relatively safely. That oppor-
tunity must not be thrown away. Make
these lockdowns work. All the blunder-
ing of recent months has to end.Lockdowns are necessary measures but must be temporary
From shutdowns to the
reopening of economies
Perhaps the new
alpha mantra should
be ESG materialityDavid Stevenson, in “Are ESG and
sustainability the new alpha mantra?”
(FTfm, April 6), identifies an
important paradigm shift: rather than
using environmental, social and
governance considerations as an “add-
on” to a typical investment process,
many are discovering that investors
can use ESG concerns as a screen to
avoid future poor-performing
companies.
But this suggests that ESG screens
can also be used to find attractive
companies to short. Indeed, as some
past studies of mine and others show,
negatively linked ESG can generate
even greater alpha than positively
linked ones. I liken this principle to the
observation that we tend to like good
companies but hate bad ones.
In addition to avoiding bad
companies, ESG screens can also help
find excellent companies. For example,
approximately 40 per cent of large US
companies now explicitly compensate
their top executives for various ESG
outcomes. These executive contracts
tend to increase both future ESG and
financial performance.
Mr Stevenson also rightly reports
that good ESG has not created
materially greater (or lesser) returns
over longer periods of time. However, a
crucial piece missing in this analysis is
materiality. In particular, although
governance almost always matters in
regards to company performance,
environmental and social factors vary
in how they link to future financial
performance for any given company.
For example, whereas emission levels
are inextricably tied to the long-term
profits of many manufacturing
companies, it is not so for most
financial companies. In contrast, a
typical financial company’s social
practices towards its employees and
customers can be fundamental to value
creation and capture.
A 10-year backtest shows that while
going long on superior ESG performers
generates excess performance of about
1 per cent a year, going long on superior
ESG performers only in those areas of
materiality extends the excess return
to 4 per cent a year. Similarly, shorting
those poor performers in material
areas of ESG generates an additional 4
per cent of alpha a year. Perhaps the
next alpha mantra should be ESG
materiality.
Dr Dylan Minor
Assistant Adjunct Professor, Anderson
School of Management UCLA
Chief Investment Officer, Argos Global
Advisors, Santa Barbara, CA, USAPRIL 7 2020 Section:Features Time: 6/4/2020 - 19: 15 User: alistair.hayes Page Name: LEADER USA, Part,Page,Edition: EUR, 16 , 1