As deaths occur and coronavirus cases start to rise in British prisons, campaigners express their concerns

As British prisons experienced their first deaths from coronavirus (Covid-19), justice campaigners have warned this might just be the beginning. A former prison officer …

By Peadar O’Cearnaigh

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In lockdown with depression

let’s not pass the buck onto families in the aftermath of COVID-19 Commentators are beginning to suggest that in the aftermath of COVID-19, we face a pandemic of mental illness. Countering this call to arms for psychiatry, others have emphasised the importance of normalising mood changes and anxiety as a natural response to the situation. Here, we consider that while worry and fear may be normal, we do still need to prepare for the psychological aftermath of COVID-19. This is not because worry and mood change are abnormal. Rather the global health crisis followed on a decade of austerity and is likely to be followed by a recession.  Existing mental health policies and treatment options have not been working well and needed changes even before the crisis hit. We argue that the vital shift required is away from individualised approaches and responsibilisation of proximate caregivers and towards collective and family-based approaches which take social contexts fully into account. The COVID-19 pandemic has the potential to exacerbate some mental health problems in the UK and Europe while simultaneously forcing people into financially, emotionally and socially precarious situations. There is, therefore, a reason to fear that the health crisis could well become […]
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Why weren’t we ready?

A lethal pandemic was considered the most serious security risk to the UK. But nothing was done.

In May 2009, the then Labour health secretary Alan Johnson was questioned by the House of Lords science and technology committee. The committee was, in the midst of the 2009 swine flu outbreak, investigating the threat of pandemic influenza. Swine flu would infect 780,000 people in the UK in 2009, but only 203 died. The Lords committee was particularly concerned about a far more lethal hypothetical threat – one such as Covid-19, which researchers from Imperial College London have estimated to be about 50 times deadlier than swine flu. 

Four weeks before Alan Johnson responded to the committee, the health department had issued a 127-page document suggesting that the NHS could double critical care capacity during a lethal pandemic. Nevertheless, the document went on, at the peak of the outbreak, “there may be ten times as many patients requiring mechanical ventilatory support as the number of beds available”. Under a worst-case scenario, Johnson conceded in a letter to the committee that “intensive care capacity may well be inadequate”. 

Johnson was not describing a black swan event. He was describing a threat that had, two years earlier, been classified as the number one national security risk to the United Kingdom. A pandemic as lethal as coronavirus has, for the past 13 years, been deemed a “level 5” threat. The only other level 5 threat has been large-scale biological or nuclear attack, but this was deemed to have a less than one-in-200 chance of happening in the next five years. The risk of a pandemic in that time was deemed to be between one-in-20 and one-in-two. 

On its website, MI5, the home security service, states that terrorism is “the biggest national security threat that the UK currently faces” but that conclusion is not supported by the National Risk Register. This is a document “given no publicity at all”, according to David Spiegelhalter, professor of risk at Cambridge University. While it is true that terror attacks are considered to be more probable than a pandemic, they are classified as only having a Level 3 impact. Other key threats – cyber attacks on infrastructure, widespread flooding, a nationwide blackout – are all rated as both less likely and less impactful than a severe pandemic. 

Covid-19 is that pandemic. That it is a novel virus and the government’s plans were for influenza is “immaterial”, says David Alexander, professor of disaster risk reduction at University College London. The coronavirus closely resembles the threat anticipated in government planning documents, of a highly infectious respiratory disease that critically hospitalises between one and four per cent of those it infects. And yet the government appears to have been unprepared. The UK lacks ventilators, personal protective equipment and testing kits, while emergency procedures for manufacturers and hospitals are being improvised on the fly. 

But the government’s planning documents – which date from 2005 to 2018 but are mainly based on the 2011 “Influenza Preparedness Strategy” – suggest that Britain may in fact have been prepared, just for the wrong outcome. The UK’s plans appear to have rested on a false assumption: if a pandemic such as Covid-19 struck, the UK intended only to mitigate rather than suppress the impact. 

Mitigation accepts that the virus will spread. Suppression does not. Boris Johnson did not come up with the concept of taking the virus “on the chin”, as he put in an interview on 5 March. Nor did Dominic Cummings, his most senior adviser, who is reported to have at first welcomed the idea. The strategy predates them both. 

***

Strict social distancing of the kind that Britain has now enforced does not underpin any of its planning documents. As Alan Johnson told the Lords in 2009, foreshadowing the initial advice of Boris Johnson’s government many years later, “even in a full pandemic… people should only stay at home if they have symptoms”. This approach dated back to the 2005 national strategy, which argued that, “Local restrictions in the movement of people, eg in a community or town, are unlikely to have much impact”. That thinking carried over to the updated version in 2011, the most recent version of the plan. Local measures to disrupt transmission, the document says, “cannot be relied on as a way to ‘buy time’”. 

“It will not,” the strategy continues categorically, “be possible to stop the spread” of a virus as contagious as Covid-19. 

In that 2011 document, banning mass gatherings is not only deemed ineffectual (“there is very limited evidence… [it] will have any significant effect on… transmission”) but is discouraged, because such events “may help maintain [to] public morale”. Technological tracking of the type being employed in Singapore does not figure in the plans. Neither does mass testing on the scale of South Korea. The deaths of between 210,000 and 315,000 people are accepted as a plausible planning outcome under a worst-case scenario. 

This is the playbook that the government followed throughout February and into early March. Under the 2011 plan, 50 per cent of deaths were expected over a three-week period. When Professor Chris Whitty, the chief medical officer for England, appeared before the Commons health committee on 5 March, he outlined the same timetable. “One of the things that is clear if you model the epidemic is that we will get 50 per cent of all the cases over a three-week period”, he said. His comments, reiterated by Patrick Vallence, the chief scientific officer, did not anticipate a significant flattening of the curve: that would have spread cases out over a longer period of time. 

Whitty and Vallence were not necessarily anticipating many deaths, as under the worst-case scenario – Whitty raised the hope that most people may suffer from Covid-19 asymptomatically – but their comments show that they were not attempting to suppress the outbreak; to reduce the rate of transmission, R, below 1.

“If this goes to the top end of the range,” Whitty conceded to parliament, as Alan Johnson had done 11 years earlier, “the NHS will have huge pressure on it for a relatively short period of time.” This approach, Whitty noted, had “pros and cons”. The benefit was that the outbreak would soon be over. As he put it, “there will be a beginning, middle and end to this”. 

This plan has now been reversed. The UK economy, the government finances and freedom of movement have all been sacrificed in order to avoid the potential mortality rate that the initial approach accepted. Yet government plans show no foresight of this likely outcome. A nationwide lockdown was not contemplated. And the inevitable shortage of ventilators in any pandemic is unmentioned. The documents do not anticipate what has now happened: an attempt to save as many lives as possible. 

In implementing a lockdown on 23 March, Johnson’s government was not only overturning its own policies, but more than a decade of Whitehall planning. It was long assumed that critical care capacity would be breached. Indeed, in 2007 the UK created a Committee on Ethical Aspects of Pandemic Influenza, to assess how doctors should prioritise patients in such a crisis. The committee’s report was full of platitudes suited for care in peacetime, advocating such principles as “respect”, “fairness”, “working together” and “reciprocity”. This is the document that is highlighted on the government’s coronavirus website. But as the Lords select committee noted in 2009, the document was “not relevant to dealing with a pandemic. A pandemic would require disaster-management”. 

To address that “reality gap”, the Department of Health produced a far more relevant and far less widely circulated document in April 2009: “Surge capacity and prioritisation in health services”. It suggests that doctors assess patients according to a stated formula for organ failure, and prioritise those most likely to be saved. The system is not foolproof and leaves the risk with doctors, who are not indemnified from the consequences of their decisions. “Additional security measures may be necessary,” the document notes, “because of the potential risks of conflict directed at staff making triage decisions” that are likely to be “controversial”. 

As one doctor, Nick Tarmey, put it in a presentation to his colleagues at Salisbury District Hospital in August 2009, the formula for organ failure “in itself doesn’t exclude enough”. Having applied it, doctors would still be left with too many patients in a pandemic. “Difficult decisions,” wrote Tarmey, who had served as a military doctor in Iraq and Afghanistan, “will still need to be made.” Tarmey is now serving as a consultant at Queen Alexandra Hospital in Portsmouth, one of the largest intensive care units in Britain. 

***

The government has downplayed the sudden and axiomatic change in its approach, with Vallence telling MPs on 16 March that there was only a “semantic difference” between mitigation and suppression. This was a direct contradiction of modelling released by Imperial College the day before, a point noted online by Steven Riley, an Imperial professor and member of the government’s modelling group. The government lockdown was not a continuation of its strategy, as Vallence implied, but a reversal of it. The strategy shifted after Imperial researchers concluded that “mitigation” – allowing the risk to spread – would create an eight-fold capacity shortage in the NHS; a gap very similar to the theoretical one outlined by Alan Johnson’s health department in 2009. 

On 24 March, a paper by researchers at Oxford University suggested that Covid-19 may be a much milder threat than the government thinks. The study’s bold conclusions cannot be verified until the UK acquires a nationwide antibody test to show who has had the disease and recovered. But the accuracy of that study or the course of the crisis will not change the ill-preparedness of Johnson’s government, or those that preceded it. 

Over the past decade of Conservative-led government, the UK’s pandemic preparedness team was disbanded, the NHS as a whole was under-resourced, and funding for nurses was cut. Britain is scrambling to acquire ventilators, but its lack of nurses to operate them may become its most pressing shortage. As the 2009 “Surge capacity” report made clear, “expertise in ventilator settings and rapidly applying interfaces is essential… Local training needs should be addressed in the pre-surge period.” 

But the UK would not have been ready for a pandemic under New Labour either. The government’s flawed planning assumptions were first articulated under Labour governments in 2005 and 2007. Every government since has either found those assumptions to be useful or simply ignored the threat of a pandemic. The problem, as Professor Alexander puts it to me, is that pandemic preparation involves “telling governments what they don’t want to know, to spend money they don’t have, on something they don’t think will happen”. 

When the coronavirus crisis hit, 50,000 ventilators were not revealed to have been bought and stored away. At a market price of £12,500, 50,000 machines would have cost one-tenth as much as the £6.2bn that the UK spent on a pair of aircraft carriers in 2011. But an aircraft carrier is a visible display of power, while 50,000 ventilators would ideally be bought in secret. 

When Churchill visited the collapsing French lines in May 1940, he was briefed by General Gamelin, the chief of the French armed forces, on the dire situation. But where, Churchill asked after Gamelin had concluded, was “la masse de manœuvre” – the divisions of troops waiting in reserve? There was no reserve. The long-planned defence of France, as with the long-planned defence of Britain against a pandemic, had rested on a false assumption. In their case, that the Maginot Line could not be breached. In ours, that a virus could not be stopped. These assumptions crumbled upon contact with reality. Now the United Kingdom is, as in 1940, rushing to counter a threat for which it should have been ready.

This piece is taken from the Spring special of the New Statesman, out on Thursday (2 April)

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Chief medical officer for England Chris Whitty, Prime Minister Boris Johnson and Chief scientific adviser Patrick Vallance speak during a press conference in Downing Street.
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How Viktor Orbán used the coronavirus crisis to hand himself unlimited power

A new law allowing the Hungarian prime minister to rule by decree has left his remaining political opponents toothless. 

Almost since the coronavirus crisis started, there have been those who predicted that it would be used by autocrats, actual and aspirant, to tighten their grip on power. People are willing to overlook more during a crisis, to give up their civil liberties, and to listen to the authorities. In exchange, those authorities see them through the crisis on the promise that, one day, things will return to normal.

Hungarian prime minister Viktor Orbán, aided by his country’s parliament, has hinted that day might come later than expected, and not because of the harm done by a virus. Earlier today (30 March), Hungarian MPs voted for a bill that will allow Orbán’s power to essentially remain unchecked. It declares a state of emergency; it allows him to rule by decree; it ensures there will be no new elections; it renders misinformation, presumably as defined by the Hungarian government, punishable by up to five years in prison; and it makes disobeying quarantine or isolation punishable by five to eight years in prison.

It does all of this for an indefinite, undetermined, undefined period of time. This is how it will be until Orbán decides otherwise. Ahead of the vote, opposition parties wrote a letter saying that they would not support “Orbán’s dictatorship law,” but acknowledging that the prime minister would likely win: his party, Fidesz, controls two-thirds of Hungary’s parliament.

Since returning to power in 2010, Orbán and his government have rewritten the constitution. News outlets have been bought up by those reportedly close to the prime minister. In 2017, the Hungarian parliament passed a law forcing NGOs that receive a certain amount of funding from overseas to register as “foreign-supported” under threat of closure. In 2018, it passed a “Stop Soros” law that criminalised helping asylum seekers. The law was, of course, named for Hungarian-born billionaire philanthropist George Soros, on whose scholarship a young Orbán went to Oxford; whose university, Central European University, has largely been pushed out of Budapest; whose Open Society Foundations moved operations out of that same city in 2018 under government pressure; and who today announced that Open Society would give €1m to Budapest to help carry the city through this pandemic.

Over the same period of time, Orbán’s Hungary has fallen a full 14 spots, from 50th in 2010 to 64th in 2019, in Transparency International’s Corruption Perception Index. There are some who believe that this – alleged corruption and enrichment for his inner circle – is the reason for Orbán’s illiberalism. Bálint Magyar, for example, a sociologist and former minister of education, ascribes to this view, and has deemed Orbán’s Hungary a mafia state.

But there are others who think that this, too, is but a means to an end. Charles Gati, a professor at Johns Hopkins University and a former friend of the Hungarian prime minister, told me in 2019 (during reporting for my book on Soros) that Orbán’s “number-one motivating factor is to show his father he is a big deal.” To do that, he needs to be bigger and more powerful than urbane liberals  – “slick city boys who knew languages,” as Gati put it. The means “to that end is the mafia state,” he told me then. “So that he and his Fidesz will live forever.”

In this context, it is perhaps not unimaginable that Orbán would look at a global health crisis and see another means to an end. This bill, once signed into law, will almost certainly put even greater pressure on what’s left of Hungary’s independent media. One man’s misinformation is another man’s report on increasing illiberalism (last year, for example, Hungarian foreign minister Péter Szijjártó said that politicians “deviating from the liberal mainstream” risked becoming the targets of “globally operating fake news factories”). 

What is left of the political opposition has been rendered toothless. In view of the pressure that Orbán’s government has put on migrants and asylum seekers, this law may well be used to target them, or to further strip the rights of the minority Roma community, about whom Orbán announced a national consultation in February (the survey, his chief of staff said, was “about restoring moral order”). The pandemic is one crisis; for others in Hungary, the passage of this bill is not a balm for that calamity, but an additional one.

To put it another way: at some point, this pandemic will end. It will loosen its grip on all of us. Whether Orbán will loosen his newly-tightened grip on power is another question – as is the matter of who that grip squeezes out of Hungary.

Emily Tamkin is the author of The Influence of Soros: Politics, Power, and the Struggle for an Open Society, published by HarperCollins in July

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Hungarian prime minister Viktor Orbán speaks to the press after meeting with Turkish president Recep Tayyip Erdogan on 7 November 2019 in Budapest.
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Want to understand fiscal rules? Start with the Iliad

Finance ministers are trying to balance the attraction of the Sirens against the fear of rocks. 

The classic story told to illustrate the problem of establishing fiscal credibility is the one of Odysseus and the Sirens in Homer’s Iliad. This analogy was minted by a previous generation operating with the sexual politics of its age.

The Sirens were mythological creatures, half bird, half woman, who tempted sailors away from their naval duties with song and then killed them, instigating an enduring misogynist cultural tradition of demonising female sexuality. Circe warns Odysseus before a voyage during which he would journey within earshot:

“They sit in a green field and warble him to death with the sweetness of their song. There is a great heap of dead men’s bones lying all around, with the flesh still rotting off them.”

Odysseus faced what economists call a time-consistency problem: a conflict between his current and future selves. Today, Odysseus fancies hearing the Sirens’ song to find out what all the fuss is about, and feels in control. But he worries about tomorrow’s Odysseus. Tomorrow, Odysseus will lose control when he is bewitched by the voices and make for the Sirens, leading to his death and the deaths of those in his charge. The solution is described plainly in the text:

“Therefore pass these Sirens by, and stop your men’s ears with wax that none of them may hear; but if you like you can listen yourself, for you may get the men to bind you as you stand upright on a cross-piece half way up the mast, and they must lash the rope’s ends to the mast itself, that you may have the pleasure of listening. If you beg and pray the men to unloose you, then they must bind you faster.”

Politics and policymaking is replete with captains tying themselves to masts: Keir Starmer listing ‘pledges’ in the Labour leadership election; David Cameron’s immigation targets; the “Ed-stone”;  Gordon Brown legislating for Bank of England independence in 1997; and of course, many examples of rules for fiscal policy, the corpses of which are littered in the careers of finance ministers.

Today’s fiscal mariner wants to respond flexibly to the economy, injecting stimulus here, withdrawing it there, as the economy dictates, mindful of long term fiscal sustainability and of not scaring financial markets so that the cost of finance stays low. Tomorrow’s fiscal self faces re-election, and, like the future Odysseus fixated on the Sirens’ voices, cares about nothing else. Knowing this, today’s fiscal self ties to the mast of a verbal commitment some kind of rule that promises not to splurge in an election campaign. As you are probably suspecting, this is not as successful a commitment as binding your hands and feet to the mast of a ship.

The emergence of the Covid-19 pandemic has blown the infrastructure of fiscal and monetary rules out of the proverbial water. This particular piece started life a month ago as a column reflecting on how the Chancellor would weigh up the need to respect austerian fiscal statements in the December 2019 general election manifesto against the temptation to please new Northern constituents, recently turned from Labour to Tory, who might have voted for Johnson’s Brexit policy, but would want other things to be more, well, Labour.

But the unprecedented scale of the crisis unfolding made the old delicate balancing calculation  and early drafts of this article  irrelevant.  

The public health strategy to fight Covid-19 is to shut down a large part of the economy to reduce the need for people to come into contact with each other, and thereby slow and halt the spread of the virus, limiting intensive care admissions and deaths. Both for ethical reasons  to compensate people for the income loss they will suffer  and to encourage them to consent with social distancing and not feel sufficiently desperate that they have to try to evade it to earn money, the government has committed to huge financial support directed at firms, employees, and now the self-employed.  

It is hard to know how much these commitments might ultimately cost, because we can’t know for sure for how long the economy will need to remain shut down, and to what degree. But it is not hard to imagine that they might total 50 per cent of GDP spread over a couple of years.

Covid-19 is having the same effect on the continent. The “Stability and Growth Pact”, which set out fiscal rules for Eurozone members, constraining deficits and debt (often honoured in the breach), has been set aside by the European Commission. And Germany, typically resolute in attempting to balance its government budget, has subsequently embarked on a hefty stimulus package comprising spending of €350bn and loan guarantees of a further €4000bn.

The virus is also resurrecting discussions about whether the Eurozone might create a Eurozone-wide Government bond. This would mean, for example, German taxpayers being potentially on the hook to pay off debt issued by the Italian or Greek governments. This makes it possible for those governments, whose fiscal space to finance their own Covid-19 strategies is more limited, to do more without causing financial markets to panic about their ability to pay that debt back.

The absence of a Eurobond at the instigation of the Euro was a fiscal rule of sorts: one that prevented individual member state governments issuing debt that entailed any obligation by other member states to make good. It was a rule insisted on by those countries who thought of themselves as fiscally well behaved to protect them from those that had not been. And just like the ultimately irresistible song of the Sirens, it has proved hard to hold the line. The bail-outs of Ireland, Portugal and Greece all involved other member states accepting some kind of obligation for others’ fiscal predicament. Now there are more explicit discussions of a Eurobond.

It is hard to map between the story of the Sirens and the Eurobond at this point. In the original story, untying himself from the mast would doom Odysseus to death. In reality, not relenting and creating the Eurobond could be what dooms the Eurozone to death. One of the pivotal moments of the Eurozone financial crisis was the attempt by Greece’s then-PM Alexis Tsipras and his finance minister Yanis Varoufakis to force more generous bail-out terms by insinuating that a disorderly Greek exit from the Euro would cause markets to run from other governments’ bonds and banks. This did not happen. Greece’s bluff was called successfully. It is far less clear that the Eurozone could withstand a disorderly exit by Italy, which being so much larger, poses a much greater threat to other member state governments and banks if it were to default.

And the risk is not just financial doom too. Without the fiscal capacity to withstand and incentivise the lockdown, the lockdown may not endure or be endurable, and without that the poorer countries will have less success taming the virus, and constitute a more dangerous reservoir of the virus on the richer countries’ borders.

Whether the Eurozone collectively figures this out remains to be seen. This magazine carried a piece documenting a call by seven leading German economists for a Eurobond. So far 14 Eurozone countries have come out in support: Belgium, France, Italy, Luxembourg, Spain, Portugal, Greece, Slovenia, Ireland, Cyprus, Lithuania, Latvia, Estonia, Slovakia. Northern European countries Germany, Austria and the Netherlands are against (interestingly the Dutch central bank governor felt motivated to go on record as describing the initiative as “understandable”). Part of the reason for the impasse is the difficulty of coming up with a mast to tie to that demarcates measures to combat Covid-19 from spending generally or places control over future spending and taxes in collective hands.

The effect of the virus on fiscal rules may be more far-reaching still. It is potentially undermining a more energetically defended fiscal taboo: the one that insists you do not pay for government programmes by printing money.  

This prohibition of monetary financing is enshrined in the German constitution, one forced on that country by Allied powers determined that there would not be a repeat of the pre-war German hyperinflation, which was judged to have been one of the proximate causes of the dynamic that encouraged the rise of the Nazis. This feature of the German constitution is inherited by the Lisbon Treaty: a necessary part of the agreement that although Germany would deprive itself of its monetary autonomy, it could and would not do so in a way that required a constitutional amendment. 

More recent examples of the effects of rampant monetary financing – such as the hyperinflationary economic collapses in Zimbabwe and Venezuela  serve to illustrate why the firewalls against it were there. Money printing does not make all that much money at rates of inflation that do not destroy the economy. Moderate inflation rates experienced by Western economies generated profits from money printing at a fraction of a per cent of GDP.  

Signs that the firewalls are not as impermeable now are not hard to find. The ECB currently lends to banks at a lower rate than banks deposit with it, and the small profits Eurozone banks can make from this is financed by creating electronic money. The ECB recently removed the limits on the proportion of a member state’s bonds that might be bought as it steps up new quantitative easing purchases. Those limits were there partly to ensure that the ECB could not buy bonds for which there weren’t also willing private sector investors. Without evident private sector demand for those bonds, there looms the possibility that they can’t be paid back and the money created to buy them by the ECB will never be unwound. The Fed, ECB and the Bank of England have all announced large new purchases of their respective sovereign’s bonds. Concerted efforts were made after the last crisis to differentiate QE from monetary financing by promising that it would be reversed. The fact that much of it wasn’t before this latest round of purchases began is going to plant the thought that these latest operations will turn out to be indistinguishable from monetary financing when history looks back on them.

When the crisis is over, there will have to be a financial reckoning. The resources consumed while lockdown deprives many of their income have to come from somewhere. Even a relatively dire scenario where afflicted economies lose a year’s worth of GDP should in principle be born easily. The current cost of financing government debt is about zero. This provides time for organising a paydown of the debt incurred that spreads the burden of today’s counter-measures over future generations. A year’s worth of GDP spread over 50 years means just a 50th less disposable income subsequently, each year, and, optimistically, much less than that, presuming economic growth resumes at something approaching pre-Covid-19 rates. 

Future generations of course have their own pandemic risk with which to contend, and the consequences of our neglect of climate change. They are by definition not around to demand a seat at the table for how the reckoning for the costs of fighting Covid-19 is designed. This will be the backdrop for new discussions about fiscal rules and frameworks that will inevitably restart at some point.

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How Covid-19 will accelerate trends that were already changing our world

The pandemic has focused attention on digital retailing and the need for secure supply chains.  

Covid-19 has changed everything, and it has effected this change so quickly that there is no-one who is not struggling to catch up. In business, we have moved to a “war footing”, ripping up our strategic plans and replacing them with daily meetings that focus on how to get through each day.

In many ways it feels as if the world has been paused. But what kind of world will we step back into, once the coronavirus pandemic is at bay? A quite different world, I suspect.

In the July 1997 issue of Wired magazine, the futurists Peter Leyden and Peter Schwartz outlined what they called “The Long Boom”, a period of economic growth that they were confident would last from 1980 to 2020. In this “history of the future”, global trade, aided by technology and abetted by liberal democracy, would double the world’s economy every 12 years and lift millions out of poverty. In many ways this was prescient; globalisation, e-commerce and digitalisation have created a stable paradigm and sustained a lengthy period of growth.

But since 2016 there have seen warning signs that the party might be coming to an end, and a feeling that a great readjustment is on its way. That change has manifested itself abruptly in the form of Covid-19.

Fundamental to the Long Boom was China’s role as the factory of the world, but now globalisation is fragmenting. Nike once had over 500 suppliers in China, but Morgan Stanley now predicts that 20 per cent of Nike’s products will be made “onshore” in automated factories by 2023. In the UK, too, textile production is returning to places such as Huddersfield. As we seek more resilient supply lines, this may well become an established trend.

The Covid-19 crisis brings into sharp focus how over-dependent we all are on global supply chains. But as national barriers are erected around the world, the “re-shoring” of production means businesses will move closer to their customers.

This could already be seen on the high street, where retail was being replaced by e-commerce and the relentless rise of Amazon. And yet this was when just 15 per cent of retail actually took place online. Covid-19 created an overnight surge in e-commerce volume, and the stores that are closing now may never re-open their doors.

Businesses, stunned by the sudden collapse in demand, have sought desperately to change their costs. Productivity growth is now a matter of extreme importance, and those businesses that survive may not re-hire their teams in the same numbers again. Instead they will look to replace replace their workforce  both in production and administration  with machines and automated processes. Again, this is the acceleration of a trend that was already present; a fifth of Amazon’s workers are robots.

That poses a question: what will the world do with all the people left behind?

One positive trend that has been accelerated by the coronavirus crisis is the reduction in carbon dioxide and other emissions. We are seeing blue skies in Chinese cities. The world has not been de-carbonising fast enough, but if Covid-19 has a silver lining, it may be that it will create a pivot point, as we change how we work, how we travel and how we balance our business objectives away from short-term profit and towards genuinely sustainable growth. Necessity has enabled an overnight mass adoption of technology to enable home working and this, I believe, will also extend to car ownership. This all seemed so implausible just three months ago, when we watched in horror as bushfires raged across Australia.

The paradigm has shifted and the Long Boom is over. We are hurtling towards a more uncertain future where the trends we have previously observed will now dramatically accelerate. They say it’s a cruel wind that blows to no-one’s advantage, but the winners will be those who adapt the fastest in the new, fast-forward world.

Jon Bumstead is a supply chain consultant and entrepreneur

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Blue sky over Beijing, March 2020
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Seven leading German economists call for €1 trillion of European crisis bonds

The New Statesman publishes an unprecedented call for common action to address the economic crisis. 

In an important intervention on the economic emergency caused by coronavirus, seven prominent Germany-based economists have called for Eurozone states to stand together by issuing collective debt. The group (six Germans and one Austrian) comprises some of the most important voices in German economic debates – including the longest-ever serving member of the country’s Council of Economic Experts and the heads of three of its top economics institutes – and offers a clear message: “The coronavirus could become a second Eurozone crisis… now is the time for action.” Their open letter has already appeared in German (in the Frankfurter Allgemeine Zeitung), French (Le Monde), Spanish (El Mundo) and Dutch (Het Financieele Dagblad). Today the New Statesman publishes it in English, in a version revised for global readers.

The economists’ argument for the common debt, sometimes called Eurobonds, is compelling. They warn of an unprecedented fall in both supply and demand in the Eurozone as offices and factories close and consumers stay at home, leading to soaring unemployment and unsustainable debt for individual member states. At present the common currency area is moving towards a package of support measures: a massive monetary stimulus (the European Central Bank is buying €750bn of government debt) and probably a tooled-up European Stability Mechanism (ESM, the union’s bailout fund) to support governments in difficulty. But the severity of the slump may outweigh even these measures and cause a huge loss of productive capacity stymying any post-virus recovery. This could be followed by a spiral of punitive and unpayable debts for the economies hit hardest and, quite possibly, rising anti-EU forces in those countries.

So the seven economists call for a bigger bazooka: €1 trillion of crisis bonds (equivalent to 8 per cent of the Eurozone economy) as an emergency pool of long-maturity funding for member states at risk of insolvency. This, they argue, would help particularly stricken countries avoid the spiral of ever-higher borrowing costs by spreading liability for the debt across the Eurozone. It would also be a safe asset, a low-risk security backed collectively by the governments of a huge economic bloc that banks could use as collateral for loans to the private sector; reducing the risk of a “doom loop” of failing banks and insolvent governments. Combined with monetary stimulus and more proactive and less punitive ESM support, the economists argue, this would enable the Eurozone to “stand together” and use its collective weight to support those in most difficulty: “the strong must help the weak.”

A particularly striking aspect of this call is that it emanates from German economists. The Eurozone is currently heading for an almighty showdown over the right balance between solidarity and prudence in dealing with the economic fallout of the pandemic. In a letter to the European Council president Charles Michel last Wednesday (25 March), the heads of nine member states, led by France, Spain and Italy, called for such ‘coronabonds’, but they were severely rebuked by their German and Dutch counterparts in a video summit the following day. 

Peter Altmaier, Germany’s economy minister, has dismissed the issue as a “phantom debate”, Ursula von der Leyen, the German president of the European Commission, has called it “just a slogan” and Wopke Hoekstra, the Dutch finance minister, has insinuated that southern Europeans did too little to shore up their finances before the outbreak. The southern camp have shot back, with Portugal’s usually diplomatic prime minister, António Costa, calling Hoekstra’s comments “repulsive”. With such divisions it seems highly improbable that the bonds will materialise any time soon. And that is without getting into the epic wrangle over terms and conditions that would ensue in the unlikely event that they did. 

And yet the debate cannot and must not be dismissed – for three reasons captured by the article the New Statesman is publishing today. 

First, this crisis truly is different from others in a way that makes any absolute predictions about Europe’s economic and financial debates foolhardy. It is different in scale: the increase in debt-to-GDP ratios incurred as Eurozone governments try to prop up their economies may well dwarf those of the last Eurozone crisis. It is also different in nature. Where in the last crisis creditor states could claim (often erroneously) that the fundamental problem was a lack of fiscal discipline in southern states, the current crisis is clearly no European country’s fault and all are clearly vulnerable to it. So supporting states in difficulty does not run the risk of moral hazard, or creating a precedent where the spendthrift know they will be bailed out. The authors of the article compare the current extraordinary moment to the 1973 oil crisis, when the then European Economic Community issued a Community Bond to help member states.

Second, things are moving. It is extremely significant that the article is signed both by economists who have backed Eurobonds in the past (such as Peter Bofinger, known as one of Germany’s “last Keynesians”) and by some who have opposed them (such as Michael Hüther and Gabriel Felbermayr, both heads of institutes sometimes associated with rules-based “ordoliberal” thought). 

At a European level, too, the political ground is shifting. The nine leaders who wrote to Michel last week included Leo Varadkar, Ireland’s Taoiseach and usually a member of the hawkish, Dutch-led “New Hanseatic League” in the Eurozone. They have since been joined by five other member states including three other members of the League (Latvia, Lithuania and Estonia), a sometime honorary member (Slovakia) and Cyprus. Now 14 of 19 member states of the Eurozone – as well as ECB president Christine Lagarde – back the idea of some sort of jointly issued bonds. That would have been hard to imagine not long ago. 

Third, the picture is also more complex than it seems. The debate about common crisis bonds is awash with crass, oversimplified stereotypes: thrifty (or myopic) northerners versus solidaristic (or profligate) southerners, Germanics versus Latins, Berlin and The Hague versus Paris, Madrid and Rome. Yet the reality is far more nuanced. Not all German authorities are against more ambitious visions of European solidarity in the current crisis, as this article shows. Indeed Robert Habeck, co-leader of the German Greens and a possible vice-chancellor in a future government, is one of several prominent German politicians to give crisis bonds his backing. 

So judge this letter not just by how much leaders act on its demands in the immediate future but by a bigger and broader metric: the long-term direction of the Eurozone’s economic debate. Europe tends to muddle rather than stride forward, the contingencies of one crisis solidifying into new structures and norms which are revised again at the next one. Some, for example, are arguing that given the current deadlock, pro-eurobond countries should go ahead without the others. Perhaps interventions like this one by seven respected German economic experts will help give them the courage to do so. The question is not whether the collapse of European economic activity caused by coronavirus will profoundly affect its institutional settlement – but how.

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To avoid economic disaster, Europe must demonstrate financial solidarity

Seven leading German economists call for €1 trillion of European crisis bonds. 

As the coronavirus sweeps Europe and societies go into lockdown, the economies of the Eurozone are now confronted with simultaneous supply and demand shocks. As people stay at home, factories are producing less and consumers are buying less.

Healthy companies with sound business models are suddenly finding themselves on the verge of bankruptcy due to acute liquidity problems. Without massive government support, unemployment will soar, consumer spending will collapse, firms will go under and the crisis will escalate.

Now is the time for action. Europe’s governments must mitigate the economic pain by providing liquidity support (like loans and tax deferrals to keep companies from going under) and, where necessary, direct transfers (like payments to the self-employed left without earnings). This will be very expensive, but every country must be able to take the measures necessary to protect its population, stabilise its economy as far as possible, and revive it quickly after the crisis has passed.

Yet not all Eurozone member states have the same budgetary room to do so. And the financial markets are currently uncertain about the will and capacity of states in the currency union to share the burden. The yield on ten-year Italian bonds, the return that investors demand for buying its government debt, has already risen markedly. 

The experience of the last Eurozone crisis hangs over the current moment. The European banking system has been reformed since then and banks are more robust. But we do not know how long the coronavirus will last and there have already been massive drops in income. The risks are enormous. A key lesson from the last crisis is that early and aggressive action is needed to kill off doubts about the stability of the banking system and to stem speculative attacks. 

How can this Herculean task be achieved? In the past, European states have assisted one another time and again when faced with serious economic crises. The European Community issued a Community Bond to combat the consequences of the 1974 oil crisis, for example. Now, once more, the time for European solidarity and risk-sharing is upon us. To do “whatever it takes” to steer our economies through this crisis, every country will have to deploy substantial financial resources. And for that, the strong must help the weak. Without common action, the coronavirus could become a second Eurozone crisis.

***

The strategy we are proposing is based on European crisis bonds – debt issued by Eurozone countries together under shared liability – giving all governments the budgetary headroom they need and spreading the costs of the crisis as broadly as possible. It would see the currency union’s 19 states together issue these community bonds to the value of €1 trillion or €1,000bn (around 8 per cent of Eurozone’s GDP), limited to the current crisis. Member states that risked losing access to capital markets, because investors judged it too risky to lend them money, would receive assistance from this pool. 

How would this help? As the liability for these European crisis bonds would be shared, the debt levels of the most affected states would increase only by a comparatively small margin, helping them to stay solvent. And the bonds would act as a “safe asset”, a low-risk asset that Eurozone banks could use as collateral for other loans (to companies for example). That would reduce the risk of a repeat of the “doom loop” between ailing banks and financially strained governments that was central to the last Eurozone crisis. Europe thus could assist the countries that have been particularly hard hit and prevent them from facing a banking and financial crisis through no fault of their own.

What safeguards would there be? Crucially this would be an emergency fund for crisis management, i.e. a one-off measure like the Community Bond issued during the oil crisis. The maturity of the bonds would be as long as possible, with the interest and repayment obligations of the individual states being based on their share of the European Central Bank’s (ECB) capital. It is probably safe to assume that the bonds could be placed on the market on favourable terms.

And how would they fit into the Eurozone’s institutional architecture? The crisis bonds would involve a strong but complementary role for the ECB as the guarantor of market stability and the setter of the Eurozone’s interest rates. The bank has already responded to the rising risk premiums on government bonds with its Pandemic Emergency Purchase Program. And while the European Stability Mechanism (ESM) – the rescue fund set up in 2012 and a creature of that era, should not take the central role in helping member states through the current crisis – there would be a practical case for mandating it to issue and manage the crisis bonds to ensure prompt, reliable implementation.

***

The bonds would send a strong signal that Europe stands together in tackling the crisis, a signal that no one could fail to notice. Overstretched countries would not be left alone to beg for help, nor would there be stigma attached to taking on joint debt.

Under our strategy they would be flanked by several additional policy tools. First, the ECB should continue to stabilise government debt markets via the new Pandemic Emergency Purchase Program, thereby preventing any speculation about the stability of public finances and thus the refinancing of existing debt. Second, the stigmatising terms attached to ESM programmes, the bailouts, should be temporarily suspended to ensure governments can roll over their existing debt and to prevent speculation against individual countries, or all countries applying for ESM programmes. 

Third, substantial resources must be put into preventing Eurozone banks from failing. The ESM’s €60bn for bank recapitalisations, infusions of capital enabling banks to keep lending, should be ramped up to €200bn to help to ensure that no doubts arise regarding their soundness. This mechanism must be employed flexibly as a first line of defence and not, as has been the case in the past, only once the resources of the member state concerned have been exhausted. This would help prevent the risky self-reinforcement of bank weakness and declines in market confidence in the stability of public finances.

The dynamics of this crisis are massive and unpredictable, so strong signals of political capacity to act together are needed. The ECB’s emergency measures so far are welcome steps towards stabilising Eurozone markets. But the political will to follow up with bold fiscal measures on the European level must not flag now. In the last Eurozone crisis, ECB interventions all too often led to a complacent sense of stability, and political efforts stalled. This negative feedback loop substantially increased the costs of the crisis for European economies. It must not do so again.

It is now of paramount importance not to lose more time. The longer the coronavirus crisis goes on and the greater the economic impact, the more obvious the existing differences in the fiscal capacity of countries will become. This would disunite Europe – at a time when it must stand together.

Peter Bofinger is professor of economics at the University of Würzburg

Sebastian Dullien is director of the Macroeconomics Policy Institute (IMK)

Gabriel Felbermayr is president of the Kiel Institute for the World Economy (IfW)

Michael Hüther is director of the German Economic Institute (IW)

Moritz Schularick is professor of economics at the University of Bonn

Jens Südekum is professor of economics at Heinrich-Heine-University Düsseldorf

Christoph Trebesch is head of international finance and global governance at the IfW

Read the New Statesman’s commentary on this article here.

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Coronavirus is a culture war: between certainty and uncertainty

The clash between politics and science over coronavirus is adding to public confusion. 

The coronavirus crisis is a culture war: between on the one hand, a political culture that craves certainty and absolutes, and on the other, a scientific culture that is rooted in uncertainty. When Boris Johnson said that the virus could be defeated in 12 weeks he was fuelling the former – and potentially storing up political difficulties for him personally.

Now Jennifer Harries, the deputy chief medical officer, has warned that the United Kingdom could be experiencing a form of social distancing for at least six months. She has not, despite what is being reported in some places, said it will take six months. It’s worth reading what she’s said in full: “Three weeks for review, two or three months to see whether we have really squashed it but about three to six months ideally, and lots of uncertainty in that, but then to see at which point we can actually get back to normal.”

The hope is that over the coming days we will see a reduction in the number of cases – that hasn’t happened yet. The death rate appears to have slowed, but the reason for this is that, as the number of cases increase, it’s taking longer to inform the next of kin (this isn’t a Covid-19-era change, but established practice – but it’s one reason why the day-to-day figures may present a more optimistic account on some days and an unduly pessimistic one on others). 

And that may – with an emphasis on the word may – mean that this period of reduced physical and social contact can end sooner rather than later. But as Harries says, it might not: there’s a great deal of uncertainty. 

Listeners to our podcast will know that the team is divided – on the one hand I think that we in the press bear our own share of responsibility for fuelling false hope about how quickly this might be over. On the other hand, everyone else thinks that ultimately the PM has an eye for a headline and knew exactly what he was doing with that 12 weeks’ remark. 

Who’s right? Well in a sense it doesn’t matter very much. Johnson might yet be bailed out by a sudden scientific advance or some other breakthrough. He might yet exit this crisis with the Conservatives’ huge, Covid-fuelled opinion poll lead intact. But if this isn’t over in six months, let alone the three Johnson suggested, then whether he is the sole architect, or merely a contributing factor to an unhelpful level of certainty about how quickly this may all be over, will neither be here nor there.

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