Tag: news

Authored by Steven Guinness,

Keeping your distance from a discernible or imperceptible threat to your wellbeing is not a difficult concept to understand. If you approach a dog and the owner warns you that the dog bites, a natural instinct for some would be to retreat and walk on. Some, but not all. A proportion of people, perhaps consisting of those who are experienced with temperamental animals, might choose to ignore the warning and gently try and coax the dog into trusting their intentions.  Here, the dog is a discernible threat. He may cause you harm, but there is no guarantee. How many in those circumstances would take the risk?

Whilst the dog is visible to the eye, the spread of the global coronavirus pandemic known as Covid-19 is undetectable. In response to this, the UK has for the past couple of weeks been practising ‘social distancing‘. Again, as with the scenario painted above, the concept is simple enough. He or she is asked to maintain a two metre gap from the rest of the general public when buying food at the supermarket, using essential services like a pharmacy or when out exercising.

In supermarkets up and down the country aisles are now marked with strips of hazard tape set two metres apart, with customers asked to keep away from each other. There are limits to the amount of people allowed into a supermarket at any one time. Those queuing outside are requested to stand the required distance apart and to shop alone.

As a concept, we are told that ‘social distancing‘ is designed purely to try and protect people from contracting Covid-19. This sounds reasonable, but there are inherent flaws. For instance, public transport is unable to practice the policy, and given that the average man or woman is not inclined to travel with a measuring stick, maintaining a two metre distance from fellow passengers on a bus or train can only be managed through judgement rather than mathematics.

In England at present, ‘social distancing‘ is not a requirement by law. It is guidance. If it were to be policed officiously and without constraint, then not only would public transport be forced to limit the amount of passengers, retail outlets that remain open, such as supermarkets, would have to start cutting back on staff and ‘furloughing‘ those affected. Right now there does not appear the appetite to extend measures this far.

But there is now a precedent for tightening ‘social distancing‘ rules. This week the Welsh government took the step of introducing a specific law that now compels businesses to adhere to the two metre distancing. Failure to do so could result in fixed penalty notices and a criminal conviction. But even here there are anomalies. As far as I can tell, the law does not include the use of public transport. And First Minister Mark Drakeford has said that the law does not equate to ‘an absolute ban on people not being able to be within two metres of one another‘. Instead, firms are expected to take ‘all reasonable measures‘ to enforce the distance. Short of having social distancing wardens stationed at every establishment that remains open to the public, the prospect of enforcing the law widely is slim to none.

‘Social distancing‘ gives the impression of trying to deal with a problem. Businesses and individuals do their best to adhere, but it is inevitable that the public and employees will still come into close contact with one another.

For me, where these new found distancing measures become far more concerning is in the ability to still be able to access your money.  For many years in the UK there have been limitations on the amount of cash you can withdraw from your account in a single day. I fear this is now beginning to extend to restrictions on accessing your cash at all.

Let me use my immediate environment in the North West England as an example. In Liverpool, supermarkets and bank branches have started enforcing social distancing at ATM machines, meaning that if they are not fixed at least two metres apart one or more of them will be shut down. This is only happening sporadically at present. It is not a coordinated response. As yet, only TSB bank is enforcing any rules at all for ATM’s in my area.

A corner shop down the road from me has closed because of Covid-19, with the ATM outside no longer operational. Local bank branches consisting of Natwest and Santander have closed altogether, and have advised customers to visit larger branches in the city centre (on the proviso that it is absolutely essential). The trouble is, that would require travelling several miles into a densely populated city when the government is telling people to stay at home. With the recent passing of the Coronavirus Bill, police now have the authority to fine you if they deem any journey you are on to be unessential.

As for bank branches that do remain open outside the city centre, they are restricting assess by cutting their opening hours, scaling back their services and only allowing a couple of people in at a time. This applies to larger branches as well.

Banks are now closing for the day as early as 2pm. The only other alternative to visiting a branch directly is to phone their call centre, something which the banks themselves are actively deterring people from doing. Only contact us if it is essential and cannot wait they say.

An alternative for bank account holders is the Post Office, where anyone can withdraw or pay money in no matter who they bank with. The opening hours for the local office down the road from me are unchanged, but larger branches are following the banks in closing earlier.

Unsurprisingly, social distancing has also been employed throughout the network.

To those who rarely if ever use cash anymore, none of this will feel like a problem. Such people have become entirely dependent on the use of contactless technology and payment via mobile apps. Increasingly, these people are now only interacting with money if they are spending it. They have no real compulsion to keep banknotes in their possession, and prefer instead to keep their wealth within the banking system. The logic goes that your money is safer at the bank, away from the hand of con-merchants and thieves.

At the turn of the century cash remained the primary method of payment. Now it is becoming a form of protection insurance for those who are sceptical of keeping all of their capital where they cannot control it. With cash at hand, if the system craters to the point of paralysis – as unlikely as that might seem – you have in the short term the means to continue buying essentials independent of the system.

If the recent spate of so called ‘panic buying‘ around the world taught us anything, it is that the perceived risk – irrational or not – of food supplies running out cajoles people into action. One hive mind fixed on self preservation. This is not a criticism of those who took the opportunity to stock up before restrictions on items were introduced. It is more an observation that people tend to wait until crisis is upon them before they act. By that point it is invariably too late for many.

A big problem is that people have been voluntarily distancing themselves from money in favour of technological convenience. Who is to say that restrictions on bank opening hours and access to ATM’s won’t eventually extend to the banking system itself coming under pressure? Back in 2007 when the Bank of England provided liquidity support to the now defunct Northern Rock, the reaction from account holders the next morning was to start withdrawing their savings. Is it not feasible that the economic fallout from Covid-19 could lead to liquidity problems for banks? Recent signs of severe dollar liquidity stress in global markets would suggest that it is.

This is where ‘social distancing‘ could be used as a control measure to keep your money in the system. Every day government officials and television adverts are reinforcing the message that you must stay at home to stop the spread of the virus. But do we really think ‘social distancing‘ would remain a priority for people if they perceive their money to be under threat? The first instinct would surely be to withdraw as much as they are permitted, like it would be for everyone else queuing for the ATM. Given how seriously branches are taking ‘social distancing‘, do not think for a moment that if a bank was under threat they would open their doors to concerned account holders. They would more likely close their doors ‘until further notice‘. ATM’s and the Post Office would then be your only remaining options for getting hold of cash. ‘Social distancing‘ could all too easily mutate into social disorder.

Right now, even with restrictions to access, acquiring money (in a physical sense) remains relatively simple. One reason for that is a collapse in demand. It was reported a couple of weeks ago that cash usage in the UK has fallen by up to 50% through fears that banknotes can spread Covid-19, despite their being no solid scientific evidence to support this. This is a topic I will be getting into in a follow up article.

Here in the UK no one knows for sure how long the current lockdown and ‘social distancing‘ measures will last. Whilst they could be relaxed in the near term, it is equally possible that they could be reimplemented later on. With cash currently being ostracised, there remains an opening to shore up some of your wealth by diversifying from digital into physical. It will not stay that way for long if people lose confidence in the banks holding their money.

Radiation across the Chernobyl Exclusion Zone spiked 17x as firefighters over the weekend battled a 250-acre forest fire, reported NBC News. 

More than 100 firefighters, several Antonov AN-32P Firekiller air tankers, and a Mil Mi-8 helicopter were dispatched near the village of Vladimirovka to fight the fire. Ukrainian emergency services said firefighters battled the blaze over the weekend and wrapped up operations by Monday.

VIDEO: A forest fire is underway in the restricted zone around Chernobyl, scene of the world’s worst nuclear accident, but Ukrainian government agencies have denied an official’s claim that the fire caused a spike in radiation levels pic.twitter.com/EOyG0XG4QD

— AFP news agency (@AFP) April 7, 2020

“There is bad news – radiation is above normal in the center of the fire,” ecological inspection chief Yegor Firsov wrote in a Facebook post alongside a video of a Geiger counter. “As you see on the video, the appliance indicators are 2,3 at ok 0,14. But such a situation is only in the fire.”

Firsov said the spike in radioactivity was observed in the proximity of the fire. He wrote in a Sunday post that nuclear experts recorded no increase of radiation levels in the capital, Kyiv, about 60 miles from the exclusive zone.

Vladimirovka is part of a 1,000-square-mile exclusion zone, which was deserted in 1986 after the Chernobyl Nuclear Power Plant explosion, which exposed millions of people to radioactive materials across Europe. The region is the most radioactively contaminated area in the world.  

We’ve noted in the past that “radioactive fallout has been blamed for hundreds of thousands of deaths, but the International Atomic Energy Agency (IAEA) acknowledges only 56 deaths among firefighters who suffered and died agonizing deaths in the disaster’s immediate aftermath.” 

Earlier this year, we showed how certain types of fungi are attracted to radiation. And the radioactive site of the abandoned Chernobyl Nuclear Power Plant has seen an abundance of fungi growing on it over the years. 

As for wildfires that are occasionally sparked in the exclusion zone, Firsov outlines the area lacks prevention measures to mitigate forest fires considering nature has taken over the region. He also blames “careless citizens” who venture into the area, sometimes setting fires.

“The problem of setting fires to grass by careless citizens in spring and autumn has long been a very acute problem for us,” he wrote. “Every year we see the same picture — fields, reeds, forests burn in all regions.”

Firsov is currently calling for new laws that would impose harsher penalties for anyone starting fires in the exclusive zone.

 “There are relevant draft bills. I hope they will be voted in. Otherwise, large-scale fires will continue to occur every autumn and spring,” he wrote. 

Authored by Nick Corbishley, via WOLF STREET,

Against this backdrop of unprecedented uncertainty, as tenants of shops, bars, restaurants and offices refuse to pay their rents en masse and almost all commercial property deals fall through, it’s all but impossible to put an accurate price on the current value of commercial real estate.

Virtually no one can escape the economic fallout from Covid-19. Not even the owners of commercial real estate, who benefited so handsomely from the central bank-engineered bailouts and property bubbles of the past decade, are immune.

In the UK, a decision by the government to grant retail tenants a three-month moratorium against eviction — an essential lifeline for many businesses that have seen their incomes dry up or drop dramatically as a direct result of the lockdown — has shifted the locus of immediate financial stress from tenants to property owners and their lenders.

The shuttered bars and restaurants in central London are a case in point. Early last week, they received a collective quarterly rent bill of around £500 million. But most of the bars and restaurants took advantage of the government’s moratorium: Instead of paying their rents, they decided to use the freed-up cash to try to weather the crisis. Now, it’s their landlords who are suddenly short of money and who may, as a result, struggle to pay their staff and meet fixed costs such as quarterly interest payments to lenders.

The same is happening across the retail landscape. Some commercial landlords received less than a third of their expected rent on Wednesday.

They include Intu, the embattled owner of dozens of semi-shuttered malls in the UK, as well as a handful in Spain, which revealed it had collected just 29% of expected first-quarter rent, even after offering a deferral and cutting service charges. That compares to 77% during the same period last year, which was already low.

Even before the virus crisis, the company was already on its last legs having endured wave after wave of retail restructurings, resulting in soaring vacancies and plunging property values. In mid-March, two weeks before the UK government initiated a generalized lockdown of the retail sector, Intu warned it was on the brink of bankruptcy after declaring losses of £2 billion for 2019 and a debt of £4.5 billion. Its shares are now worth just four pennies a piece, having tumbled by 96% over the past year.

Intu is now threatening to take legal action against non-paying tenants, saying it would not “bankroll” retailers that have “just decided they don’t want to pay their rent.” Many other retail landlords are reportedly doing the same, despite the fact that many of their tenants have had to halt the lion’s share, if not all, of their business activity, decimating their earnings for the foreseeable future. Even before this crisis hit, many of these retailers were already struggling in the face of slowing sales, high costs, low profitability and rising competition from online rivals.

Intu is also frantically lobbying the government to grant it access to the £330 billion of state-backed loans and guarantees the government has pledged to roll out in support of businesses affected by the lockdown. If the government caves, Intu may have a fighting chance of renegotiating the huge loans it owes to its lenders before the covenants on some of those loans are broken.

Given the company already failed spectacularly in its bid to raise fresh funds from investors earlier this year, the banks may end up deciding not to throw yet more bad money after bad, even if the government agrees to guarantee up to 80% of any new loans. After all, once the lockdown begins to be lifted, the UK’s bricks-and-mortar sector will be in an even more parlous state than it was before the crisis, as evidenced by department store Debenhams’ announcement Friday that it is filing for bankruptcy, less than a year after being rescued by lenders, which wiped out its stockholders.

There’s no way of knowing how many more retail chains and store will follow in Debenhams’ doomed footsteps. Against this backdrop of unprecedented uncertainty, as tenants of shops, bars, restaurants and offices refuse to pay their rents en masse and almost all commercial property deals fall through, it’s all but impossible to put an accurate price on the current value of commercial real estate.

This is the rationale being used to justify gating most of the UK’s large open-end property mutual funds, trapping over £20 billion of investor funds. The first wave of closures, in mid-March, affected around a dozen mutual funds that offer daily withdrawals to their (predominantly retail) investors, even though the funds’ core investment — offices, industrial property and retail parks — is extremely illiquid, often taking months to offload. Between them, these funds manage some £11 billion of assets, equivalent to around a third of the total assets under management in the UK’s property fund sector.

At the end of March, a fresh wave of gatings hit, as the £3.4 billion BlackRock UK Property, the £2.4 billion Schroder UK Real Estate funds and five institutional funds managed by Royal London and Legal & General, including one with assets of £3.4 billion, announced they were suspending redemptions for the foreseeable future. Unlike the earlier round of closures, these funds have quarterly or monthly redemptions and are typically held by institutional investors with a more long-term investment approach.

“The basic issue is the same: there’s fundamental uncertainty over the net asset value,” said independent property consultant John Forbes.

“That’s compounded if the rent income doesn’t arrive. That potentially makes the valuation more challenging.”

In times of extreme financial stress and uncertainty, it’s not unusual for real estate to be plagued by acute liquidity issues. In June 2016, in the aftermath of the Brexit vote, six commercial real estate (CRE) funds suspended redemptions. But never before have so many real estate funds shut the doors on so many real estate investors.

Those investors are likely to have to wait quite some time before they see any of their money again. Material uncertainty “is still going to be here on June 30. I’m incredibly doubtful that we’ll be through this on September 30. [The funds] can’t resume trading until then,” said Mr Forbes. If the recent experience of the gated (and eventually wound down) Woodford Equity Income fund is any indication, by that time the investors may suddenly find that the value of their investment has significantly shrunk.

*  *  *

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Experts have found the origin of the F-word can be traced back to a Scottish manuscript penned by a student who was in lockdown due to a plague in the 16th century, reported The Scotsman. 

An hour-long BBC Scotland documentary, which airs on Tuesday, will show the Bannatyne Manuscript, which was written by George Bannatyne in 1568, while he sat in quarantine at his Edinburgh home. 

The manuscript contains The Flyting Of Dunbar And Kennedy, an alleged account of a dual between poet William Dunbar and Walter Kennedy in Edinburgh before the court of King James IV of Scotland in the early 1500s. 

In the documentary, Dr. Joanna Kopaczyk, a historical linguistics at Glasgow University, tells viewers: 

“In the Flyting of Dunbar and Kennedy, when Kennedy addresses Dunbar, there is the earliest surviving record of the word ‘f***’ in the world.” 

Kopaczyk says there is “some very juicy language” in Bannatyne’s collection and that Dunbar and Kennedy exchange insults with one phrase that said: “wan fukkit funling.”

She adds: “We are looking at a 500-year-old object. It’s a very precious manuscript and you can see the actual handwriting.”

Actress and theatre-maker Cora Bissett says in the documentary: “It might never quite make the tourist trail, but here in the National Library we have the first written ‘f***’ in the world. I think that’s something to be proud of.”

A spokeswoman for the National Library of Scotland, which is where the collection of literature is stored, said: “The Bannatyne Manuscript is a collection of some 400 poems compiled by the young Edinburgh merchant George Bannatyne in the last months of 1568, when an outbreak of plague in Edinburgh compelled him to stay indoors. It is one of the most important surviving sources of Older Scots poetry.” 

“The manuscript remained in his descendants’ possession until they gifted it to the National Library’s predecessor – in 1772.

“It has long been known that the manuscript contains some strong swearwords that are now common in everyday language, although at the time, they were very much used in good-natured jest.

“In particular the great slanging match between the poets William Dunbar and Walter Kennedy has been infamous for giving us the earliest known examples of these terms in written form,” the spokeswomen said.

And with quarantines around the world, we wonder what new words will people create today. Already we’ve documented one, that is, “Covidiot.”  

Authored by Michael Wilkerson via Project Syndicate,

In The Fortunes of Africa, author Martin Meredith describes a Dutch sailing ship that dropped off a load of laundry for the Khoikhoi, the local inhabitants of the southwestern cape of Africa whom Europeans called Hottentots. The year was 1713. The Khoikhoi washed the laundry and were duly paid.

But the laundry was carrying smallpox. Over the next year, the community was laid to waste. Nine out of ten Khoikhoi died, and the tribe eventually disappeared from the Cape.

Once again, a foreign pathogen is threatening Africa. The full impact of COVID-19 will be felt there later than in the rest of the world, but the financial markets have already exacted their toll. Even before the virus has made much headway on the continent, African currencies, sovereign debt, and public equities have fallen dramatically, in many cases experiencing losses far greater than in developed or other developing and emerging markets. The impact on African equity markets has already been worse than in the depths of the global financial crisis.

But, if managed properly, the pandemic may prove to be a loud hiccup on the way to realizing the African Century. As an investor and philanthropist in Africa for more than a decade, I have been focused on the unparalleled opportunity that the continent represents. As former South African President Thabo Mbeki put it in his 1999 victory speech, “The people of our country have given an unequivocal directive that we must work together for the African Renaissance, for the emergence of the 21st Century as the African century.” Strong underlying growth, attractive demographic trends, improved governance, stability, and transparency imply enormous opportunity over the long run, with the potential for tens of millions to be lifted out of poverty.

Africa’s population, growing at 2.5% per year (about twice the pace of India), is expected almost to double within the next 30 years. By the end of this century, Africa will surpass Asia in the number of working-age adults.

With this growth come challenges. Millions of able-bodied African young people will require education, jobs, housing, health care, and other social goods that their countries today are largely unable to provide. While the coming youth bulge holds great promise, it could jeopardize geopolitical stability if it is mishandled. A generation of under-educated, under-employed, and economically frustrated youth is a powder keg that could disrupt societies not just in Africa, but across the globe.

COVID-19 will interrupt the African Century in the short term. Lockdown enforcement may cause social unrest. Already, there have been protests and near-riots in Nairobi, Johannesburg, and elsewhere.

Lockdowns in large African cities are not the same as in China, Italy, or the United States. Housing settlements are informal and population densities are higher. Food and other essentials must be bought and consumed daily – often from open-air markets and kiosks, with cash earned the same day. Social distancing is impossible when five or more household members are sleeping in a single poorly ventilated room. Washing hands frequently is difficult when water has to be fetched from an unprotected community source down the road.

Hunger speaks louder than government edicts. Most African workers are involved in primary agriculture and must be able to plant, harvest, and process their crops. After all, there is no point in living now only to starve later.

African leaders will continue to look abroad for support. Many African governments, having tilted easily and early to the Chinese sphere of influence, have begun seeking alternatives elsewhere. But China will seek to capitalize on the crisis. For example, China will offer financial, medical, and other assistance, as it has with Italy. And China’s aggressive and decisive actions to combat the pandemic at home will be seen by many as a paradigm for Africa, given Europe and America’s disjointed and inept responses so far.

But Africa could emerge from the pandemic with less lasting damage than many fear. Leaders have learned important lessons from epidemics, notably Ebola. Warm climates, a mostly young and rural population, and lower rates of regional travel may slow the spread of the virus and hold down its mortality rate.

True, African institutions are too frail and under-resourced to cope with the pandemic and its economic fallout, and the continent’s medical systems are woefully unprepared. But financial and institutional support from Europe and the US will help mitigate the harm, particularly if solutions focus on delivering much-needed education, supplies, and infrastructure to where the needs are greatest.

In order to realize the promise of the African Century in the not-too-distant future, African countries cannot do it alone. As Ken Ofori-Atta, Ghana’s finance minister, recently told the Financial Times, this is “a break the glass moment” for the continent – an emergency in which international actors need to take drastic action if the world’s poorest region is to avoid a human and economic catastrophe. Recognizing Africa’s unique population, circumstances, and geopolitical significance is essential.

We cannot permit COVID-19 to halt Africa’s progress. The continent’s leaders and its developed-country partners can and must contain the pandemic. The Khoikhoi’s fate is a warning. It must not become a prologue.

China has distributed nearly 4 billion masks to foreign countries as it ramps up production of Personal Protective Equipment (PPE), a move to restore its image as a global leader focused on humanitarian relief amid the COVID-19 pandemic that originated in its country and spread across the world. 

However, The Spectator provides a new account of how China’s latest diplomacy has turned out to be an absolute ‘disaster,’ in the latest example with Italy and other European countries. 

China told the world that it would donate tons of PPE to Italy to slow the virus outbreak. Reports now indicate that China actually charged Italy for PPE, instead of donating. It also turns out the PPE China sent over was the same equipment that Italy donated to China earlier in the year. What a mess… 

“Before the virus hit Europe, Italy sent tons of PPE to China to help China protect its own population. China then has sent Italian PPE back to Italy — some of it, not even all of it … and charged them for it,” a senior Trump administration official told The Spectator.

Since March 1, China has exported 3.86 billion masks, 37.5 million pieces of PPE, 16,000 ventilators, and 2.84 million test kits across the globe, according to the New York Post. 

Many countries who have received masks and other medical equipment from China have complained about the quality does not meet medical standards. China has apologized for quality issues and blamed its defective equipment on others.

Last week, we noted that the Netherlands was forced to recall 1.3 million face masks produced in China because they did not meet safety standards.

In Spain, the Ministry of Health on March 26 revealed that 640,000 COVID-19 tests that it had purchased from China were defective.

On March 28, the French government, which has several weeks of medical supplies left, announced it had ordered one billion face masks from China. It remains to be seen if the masks will be defective 

“It’s so disingenuous for Chinese officials now to say we are the ones who are helping the Italians or we are the ones who are helping the developing world when, in fact, they are the ones who infected all of us,” the senior administration official said.

 “Of course, they should be helping. They have a special responsibility to help because they are the ones who began the spread of the coronavirus and did not give the information required to the rest of the world to plan accordingly.”

The official also said China’s disinformation campaign to downplay the severity of the virus delayed the administration’s response to prepare the country for an outbreak by at least a month.

“The disinformation that China has put out is crippling responses around the world… We’re operating on some level with a hand-tied behind our back.” 

The revelations surrounding Italy and faulty medical equipment shipments to European countries are fueling distrust among Chinese President Xi Jinping, who is attempting to position himself as the world’s new humanitarian superpower.

Authored by Soeren Kern via The Gatestone Institute,

As the coronavirus unleashes economic shockwaves across Europe, the European single currency, the most visible symbol of European unification, is facing collapse.

The eurozone – a monetary union of 19 of the 27 Member States of the European Union that have adopted the euro as their common currency – is being buffeted not only by the prospect of a deep and long-lasting recession. Northern and Southern European countries are also feuding over possible financial support for Italy and Spain, the EU’s third- and fourth-largest economies, which have been especially hard hit by the coronavirus.

On March 13, European Central Bank (ECB) President Christine Lagarde dismissed calls by Italy for financial assistance to help it cope with the pandemic. After her comments rattled financial markets, Lagarde quickly reversed course and said that the ECB was “fully committed to avoid any fragmentation in a difficult moment for the euro area.” Italian President Sergio Mattarella replied that Italy had a right to expect solidarity from beyond its borders rather than obstacles.

On March 18, the ECB announced that, in an effort to calm sovereign debt markets, it would spend €750 billion ($810 billion) to purchase bonds issued by national governments. Lagarde tweeted: “Extraordinary times require extraordinary action. There are no limits to our commitment to the euro.” Larry Elliott, Economics Editor of the Guardian newspaper, wrote that the ECB’s announcement was evidence that, without a massive support package, the eurozone was in danger of collapse:

“The situation is immensely more dangerous — both economically and politically — than it was when spiraling Italian and Spanish bond yields prompted Mario Draghi’s [President of the European Central Bank between 2011 and 2019] “whatever it takes speech” in 2012. With people dying in their thousands, borders closing and activity collapsing, the entire European project is at risk.”

On March 26, EU leaders, during a virtual summit held by video conference, were unable to agree on an economic response to the coronavirus. A day earlier, nine eurozone countries — Belgium, France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain — called for a common debt instrument, called “coronabonds,” to mitigate the damage caused by the coronavirus crisis. “We are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all,” they said in a letter.

Austria, Finland, Germany and the Netherlands, dubbed the eurozone’s “frugal four,” rejected the idea of issuing joint debt to finance economic recovery in Southern Europe. Dutch Prime Minister Mark Rutte said that issuing joint debt would be “crossing the Rubicon” because it would turn the eurozone into a “transfer union” in a way that was not foreseen by the Maastricht Treaty, which established the European Union and laid the foundation for the single currency. “I cannot foresee any circumstance under which we will change our position,” he said.

Dutch Finance Minister Wopke Hoekstra, in a letter to parliament, warned that coronabonds would introduce the threat of “moral hazard” by disincentivizing economic reform in debt-ridden Southern Europe. He also called on the European Commission, the EU’s administrative arm, to investigate why countries such as Italy and Spain have not made adequate economic reforms since the 2008 financial crisis.

A European diplomat quoted by the Dutch newspaper De Volkskrant described Hoekstra’s comments as a “serious insult” to Southern Europe. Another diplomat said that the comments were a “Dutch middle finger to the south.”

Southern European countries have the option of tapping funds from the European Stability Mechanism (ESM), the eurozone’s bailout fund, which lends money under strict conditions. Those countries are reluctant to use the ESM because they would be saddled with long term debt that would be hard to repay, and because the conditions would impinge on national sovereignty.

Writing for the Wall Street Journal, correspondent Marcus Walker explained the dynamic:

“Northern offers of loans with strings attached strike the south as punitive and inadequate. Southern clamor to issue joint bonds sound to the north like a demand to use its credit card….

“The specter of a divided eurozone remains. Unless the economic shock of lockdowns is quickly overcome, Italy and Spain are in danger of emerging from the coronavirus crisis as poorer countries. A renewed depression in Southern Europe would also be bad news for northern nations, whose industries and banks profit from the overall health of the region’s economy.”

In other words, if the coronavirus crisis eventually causes Italy to default on its debt, the reverberations will be felt across Europe — and the globe. Italy, with a GDP of nearly $2 trillion, is said to be “too big to fail, too big to bail.” Desmond Lachlan, a Resident Fellow at the American Enterprise Institute, noted:

“Unlike Greece, Italy is too big an economy to fail for the euro to survive and too big and costly an economy for its European partners to save….

“In gauging Italy’s systemic importance to the global economy, one should bear in mind that its economy is approximately 10 times the size of that of Greece and that it is the eurozone’s third-largest economy.

“Equally important is the fact that after the United States and Japan, Italy has the world’s third-largest sovereign debt market with more than $2.5 trillion in outstanding government debt.

“It is difficult to conceive of a scenario where an Italian debt default would not trigger a European banking crisis. Were that indeed to occur, it must be expected to have global economic and financial market ramifications.”

The Associate Editor of the UK-based newspaper Independent, Sean O’Grady, wrote that the coronavirus crisis could catapult Italy into bankruptcy:

“Italy’s crisis is Europe’s. When Italy catches a cold, Europe will catch pneumonia. The euro cannot permit a major economy (Italy is the eurozone’s third-largest) to collapse in a disorderly mess.”

In Spain, which recently overtook Italy as the epicenter of the coronavirus in Europe, Prime Minister Pedro Sánchez committed €200 billion ($215 billion) — 20% of the country’s GDP — to alleviate the economic and social consequences of the pandemic. When asked how he would pay for that amount of spending, Sánchez replied that he was counting on financial help from “Europe.”

Meanwhile, the coronavirus crisis is wreaking havoc across the eurozone, which suffered an unprecedented collapse in business activity in March 2020, according to IHS Markit, a London-based information provider. “Business sentiment about the year ahead has plunged to the gloomiest on record, suggesting policymakers’ efforts to date have failed to brighten the darkening picture,” it wrote. A survey by McKinsey & Company forecast that eurozone GDP will fall by 10.6% in 2020, and will not return to pre-crisis levels until the end of 2024.

On April 6, French Finance Minister Bruno Le Maire warned that France is likely to see its deepest recession since the end of World War II this year because of the coronavirus crisis. “The worst growth figure in France since 1945 was in 2009, after the great financial crisis of 2008: -2.2%. We will probably be far beyond -2.2% this year,” Le Maire told the Senate Economic Affairs Committee. “This shows the extent of the economic shock we are facing,” he added.

France, the eurozone’s second-largest economy after Germany, imposed a nationwide stay-at-home order since March 17. The lockdown will last until at least April 15. One month of confinement would cost France around 3 points of GDP over a year, and two months of confinement around 6 points, according to French Statistics Agency INSEE.

French President Emmanuel Macron warned his fellow EU leaders that the coronavirus outbreak risked undoing the bloc’s central pillars if they failed to show solidarity in this crisis. “What’s at stake is the survival of the European project,” he said.

Achim Truger, a member of the German Council of Economic Experts, said that he believes that coronabonds are necessary to prevent a collapse of the euro:

“All countries in Europe are being hit by the epidemic — Italy and Spain particularly hard. All countries, including Germany, must therefore be able to make the necessary health expenditures and take measures to bridge the economic crisis. This is only possible through additional government debt, and this must be guaranteed to prevent another euro crisis. If the debt loads of Italy and Spain rise sharply, they will be pushed into budget cuts, thus economic, social and political crises, which would ultimately lead to a sovereign debt crisis and a collapse of the euro and the EU. Therefore, there must now be a joint, solidarity-based solution.”

Oliver Hartwich, a German economist and prominent commentator on European affairs who is the Executive Director of the Wellington-based think tank The New Zealand Initiative, summed up the European predicament:

“Today, not a single European country is doing well which means there is limited willingness for European countries to come to each other’s aid. They are busy dealing with their own crises. Just witness how Italy has been left alone with its crisis by Europe and now rather gets its medical support from China….

“An almighty economic earthquake is in the making. In a few weeks or months, several large European economies will require bailout and assistance packages. These will be several times larger than anything Europe has seen. Yet no country, central bank or institution will be eager or even able to provide them. Even the gargantuan sums on the table now will not be enough.

“Incidentally, forget about the International Monetary Fund. It was already stretched when it got involved with Greece last time. It cannot bail out all of Europe when the euro collapses.”