Financial Times 09Apr2020

2 ★ FINANCIAL TIMES Thursday9 April 2020

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CORONAVIRUS

M A RT I N A R N O L D —FRANKFURT

DAV I D K E O H A N E —PARIS

The German and French economies are

in the grip of historic recessions which

are set to wipe out years of growth in

only a few months, according to fore-

casts published yesterday, as leading

bodies warned of the impact of the coro-

navirus crisis on the global economy.

Germany’s economy will shrink by

almost 10 per cent in the three months

to June,said the country’s top economic

research institutes; the sharpest decline

since quarterly national accounts began

in 1970 and double the size of the biggest

drop in the 2008 financial crisis.

Meanwhile, the shutdown ofmuch

economic activity to contain the spread

of the pandemic is knocking 1.5 percent-

age points off French growth for every

two weeks it continues, the Banque de

France warnedyesterday. After more

than three weeks in lockdown,eco-

nomic output is expected to have fallen

by the sharpest rate since the second

world war, the central bank said, fore-

casting that gross domestic product

could have contracted 6 per cent in the

first three months of the year.

The scale and speed of the shock the

virus has dealt the global economy was

shown in OECD data yesterday, which

gave the strongest signal on record that

major economies have entered recess-

ion.It said its index of composite leading

indicatorshad its biggest fall on record

in most large economies in March.

Meanwhile, the World Trade Organi-

zation said that global trade was

expected to contract by more than dur-

ing the financial crisis. World merchan-

dise trade is set to plummet by up to 32

per cent due to the risis, marking ac

much faster contraction than the 12 per

cent fall in 2009, the WTO forecasts.

“These numbers are ugly, there is no

getting around that,” WTO director-

general Roberto Azevêdo said. “The un-

avoidable declines in trade and output

will have painful consequences for

households and businesses, on top of the

human suffering caused by the disease.”

But the OECD warned that because of

uncertainty over how long lockdown

measures would last,yesterday’s figures

could be taken to reflect only the cur-

rent situation, not how long or how

severe the contraction ould last.w

Lockdownshave frozen many busi-

nesses and forced most people to stay at

home, plunging the bloc’stop econom-

ies nto freefall. Governments in Berlin,i

Paris and otherEU capitals have laun-

chedprogrammes to provide hundreds

of billions of eurosfor businesses and

workers whose incomes have been hit.

“In Europewe are doing a huge fiscal

stimulus... as GDP is collapsing, in-

comes are stabilised,” said Philippe

Martinat Sciences Po in Paris. “Those

incomes are being saved so saving rates

are skyrocketing in Germany, France,

Spain. The question is what do we do

with that once the crisis ends?”

For every week in confinement in

March, French business activity drop-

ped by about a third, the central bank

said. The decline in theeconomy is set to

be of a similar scale to the second quar-

ter of 1968 whenGDP fell 5.3 per cent

because ofstudent rotestp s.

Germany’s economy is set to shrink

1.9 per cent in the first quarter and by

4.2 per cent this year, theinstitutes said.

But they forecasta rebound next year.

Additional reporting by Delphine Strauss

and Valentina Romei in London

Eurozone

Germany and France enter recession

Outbreakerases years of

growthin monthsfor

bloc’s big economies

M E H R E E N K H A N A N D SA M F L E M I N G

BRUSSELS

G U Y C H A Z A N— BERLIN

The Netherlands and Italy are being

urged to resolve a clash over the terms

of emergency lending to tackle the

coronavirus outbreak after a 14-hour

meeting ofEU finance ministers rokeb

upwithoutagreement.

An impasse remains between The

Hague and Rome over the conditions

attached to loans from theEuropean

Stability Mechanism, the bloc’s bailout

fund, during an all-night teleconference

that endedyesterday morning.

Diplomats said Dutch finance minis-

ter Wopke Hoekstra refused to back

down from demands for tougher condi-

tions being attached to the credit lines,

scuppering hopes for a deal in the early

hours of yesterday. The dispute meant

ministers could not agree on a broader

report forthe bloc’s leaders that lays out

Europe’s crisis fighting measures and a

plan for a post-pandemic recovery.

“It was Hoekstra who was the only

man blocking the deal,” said one diplo-

mat involved in the meeting. “The

Dutch are insisting on macroeconomic

conditions over the ESM loans”.

The ministers are set to reconvene

today o find enough common ground tot

put forward a set of recommendations.

Even if they manage toagree onemer-

gency measures to fight the economic

crisis, governments remain far apart

over the vexed question of how to fund a

common reconstruction effort.

In comments aimed at Italy and the

Netherlands, Olaf Scholz, German fin-

ance minister,yesterday urged EU gov-

ernments “not to refuse to resolve these

difficult financial issues” andfind a

“good compromise for all citizens”.

Bruno Le Maire, his French counter-

part, said: “As we are counting deaths by

hundreds and thousands, ministers of

finance are playing on words and adjec-

tives. That’s a shame for finance minis-

ters, a shame for the eurogroup and a

shame for Europe. We should have a

common understanding of the gravity

of the crisis and decide on a strong com-

mon response.”

Finance ministers began alking ont

Tuesday o try to agree at package of

measuresto support businesses, indi-

viduals and public finances aslock-

downs drive the EU into ecession.r

Ministers made progress on several

elements of the package, including a

temporary €100bn unemployment re-

insurance scheme and a boost to the

lending capacity of the European

Investment Bank. But talks foundered

over the role of theESM.

Italy and the Netherlands clashed

over how to design loans from the

€500bn bailout fund. Roberto Gualtieri,

Italy’s finance minister, demanded that

credit lines from the ESM come with no

promise from countries receiving the

money tomake economic reforms.But

Mr Hoekstra insisted his government

would not accept anunconditional

mechanism. “We think it’s sensible to

combine the use of the ESM with certain

economic conditions,” he said, adding it

was “too early to agree a total package”.

Italy’s centre-left government is

under huge pressure to avoid signing up

to the ESM for fear of being stigmatised

as needing an EU handout.Matteo Sal-

vini, leader of the Eurosceptic League,

warnedRome against taking money

from “loan sharks in Berlin and Brus-

sels”, remarks that officials said limited

Mr Gualtieri’s room for compromise.

TheDutch domestic debate n theo

ESM has also become increasingly

fraught. Mr Hoekstra has said the Neth-

erlands will not stop immediate finan-

cialaid being granted to Italy and other

countries for their healthcare systems.

But he has insisted this must be followed

up with plans for post-crisis reform to

ensurefunds are repaid.

Diplomats said the two sidesedged

closer to an agreement as the night pro-

gressed, with Italy signalling it could live

with compromise language on the terms

of ESM lending. However, Mr Hoekstra

refused to give ground. Mário Centeno,

eurogroup chair, decided that differen-

ces over the terms of ESM credit lines

were toogreat for an immediate deal.

Officials said Germany and France

would nowpressureThe Hague and

Rome to find common ground. Speak-

ingyesterday, Mr Scholz said precau-

tionary credit lines from the ESM

“shouldn’t mean that commissars come

to your country, or the troika, and

develop programmes for the distant

future, like 10 years ago”.

Earlier,Rome demanded an explicit

reference to the use of “coronabonds”,

jointly issued debt. Mr Hoekstra

rejected any mention ofthat and said

existing measures were sufficient to

address the immediate crisis. Rather

than refer to coronabonds, a draft state-

ment referred to innovative financial“

instruments”to build a recovery fund.

Even if ministers manage to settle on

broad-brush language oday, the debatet

over common debt issuance remains as

divisive as ever.A northern eurozone

official said:“We need coronabonds to

die to make any compromise.”

Editorial Comment age 16p

Lex age 18p

Economic response

Dutch blamed for failure to strike crisis loans deal

Loan voice:

Wopke Hoekstra

of the

Netherlands

takes part in

the video

conference with

fellow EU

finance

ministers

Bart Maat/ANP/AFP/Getty

V I C TO R M A L L E T— PARIS

Daily carbon dioxide emissions have

fallen almost 60 per cent across the EU

since coronavirus lockdowns put the

world economy into reverse, underlin-

ing how the pandemic has sharply

reduced — albeit temporarily — the

humanimpactontheenvironment.

Measures by the 27 EU member states to

confine their populations to slow the

spread of the virus have disrupted econ-

omies and prompted a 58 per cent

decline in daily carbon emissions,

according to calculations by Sia Part-

ners, a French consultancy specialising

in energy.

Emissions from cars and motorcycles

were down 88 per cent, for example,

while those from the energy sector fell

almost 40 per cent from before the

crisis.

The one sector where emissions have

risen since the pandemic began is

households, where they are almost a

third higher because of the huge num-

bers of Europeans who are confined to

their homes.

“Once the confinement is finished,

some sectors will restart right away and

others will not,” said Charlotte de Lor-

geril, an energy, utilities and environ-

ment partner at Sia. “We won’t get back

right away to the level of before.”

Sia made its calculations by taking

daily emissions from important sectors

of the economy and working out how

much activity has been curtailed by

confinement measures in each country.

In the Netherlands, for example, rail-

way use is down 20 per cent while in

France it has fallen by half.

Among EU countries, the smallest

decreases in emissions were in Malta

and Sweden, an outlier because its gov-

ernment has sought to maintain eco-

nomic activity where possible. The big-

gest declines were in those EU countries

worst affected by the pandemic: France,

Spain and Italy.

Other potentially harmful gases emit-

ted by vehicles and industry have also

declined during the pandemic. The

European Space Agency said recently

that its satellite observations showed

sharp reductions in nitrogen dioxide

pollution in the continent’s big cities,

including Milan, Paris and Madrid.

In China, where the coronavirus pan-

demic began, the lockdowns and the

economic slowdown improved the

country’s notoriously poor air quality

and wiped out the equivalent of the UK’s

carbon emissions for six months.

Rising carbon dioxide emissions since

the industrial revolution have acceler-

ated global warming, hastening the

onset of damaging climate change.

Many of those concerned about the

warming trend believe the coronavirus

crisis is the ideal moment to rethink

economic models — by introducing a

carbon tax, for example, at a time of

conveniently low oil prices. Some have

even suggested that more lives may be

saved by the reduction of lethal air pol-

lution than have been lost to the pan-

demic.

But scientists also fear that the crisis-

induced relief for the environment and

the climate will be shortlived.

François Gemenne, a climate expert

at the University of Liège in Belgium,

said that while expected cuts in global

carbon emissions in 2020 were positive,

it would not mean much in the longer

term unless governments changed their

outlooks. “I see governments trying to

throw a lifeline to their fossil indus-

tries,” he said. “My concern is not just

the way in which economies restart, but

the billions injected by governments. I

see that money going mostly to the car-

bon economy and not to a decarbonised

economy.”

Pollution

EU carbon emissions plummet as lockdowns reduce activity

Carbon emissions since

the lockdowns

Daily CO emissions as a  of normal

for EU 

Source: Sia Partners

Pre-

lockdown

Coronavirus

restrictions

Energy

Internal flights

Cars and

motorcycles

Utilities

Goods vehicles

Railways

Shipping

Food industry

Industry

Households

Services

Farming

Waste

management

Forestry



















Cases so far

Indian court to ensure testing is free in

public and privately run laboratories

India’s Supreme Court has directed the government to

ensure that testing for coronavirus is free in public and

privately owned laboratories, after private labs had

been permitted to start offering tests at up to Rs4,

($60) per customer. ndia has struggled to scale up test-I

ing and has one of the lowest rates of any country. It

recently permitted a handful of private laboratory

chains to conduct tests to help increase testing capacity.

US testing on the rise

Passover curfew imposed across Israel

to deter traditional family gatherings

Israelis will spend the next few days under strict curfew

to stem the spread of coronavirus over the Jewish holi-

day of Passover, when it is customary for families to

gather. The police and thousands of soldierswill be at

checkpoints restricting travel between cities. All busi-

nesses ave been shut and people are not allowed to goh

more than 100 metres from home until Saturday.

Daily tests per million people

     

UK Italy Germany* Japan

S Korea US (Covid-tracker)

*Daily averages based on weekly data

Sources: CDC; Covid Tracking Project; Japan's health ministry;

UK health ministry; FT research

Germany’s weekly

tests jump from

 to



Number of days since first reported case

Germany and Italy continue to lead the way with the

number of tests per million people, while figures from the

volunteer-led Covid Tracking Project in the US show the

country making big strides in its testing efforts.

1,452,

and 83,615 deaths by 17.50 BST, April 8

Read more at ft.com/coronavirus

CORONAVIRUS

ROUND-UP

Border crossings for all personnel

closed between Russia and China

Russia and China have closed their land border for per-

sonnel crossings after the Heilongjiang province rec-

orded 25 new cases of coronavirus among citizens

recently returned from Russia. Russia hadsealed off its

more than 4,000km border with China in late January,

but had allowed some people and goods to cross. “All

personnel passages at the... crossings have been tem-

porarily closed,” the Chinese embassy in Moscow said.

Poland boosts rescue package by $24bn

in attempt to avoid jobs disruption

Poland has expanded its Covid-19 economic rescue

package by 100bn zlotys, roughly $24bn, as its central

bank lowers borrowing costs for the second time in

three weeks. Prime minister Mateusz Morawiecki said

themeasures, which bring upport for the economy tos

around 320bn zlotys, wereto help companies avoid lay-

ing off staff. “Today’s economic goal is to maintain the

largest number of jobs possible,” Mr Morawiecki said.

10 %

Amount by which

Germany’s economy

will shrink in the

three months to

June

6 %

Amount by which

France’s economy

could have

contracted in the

first quarter

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