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A New Hurt in Italy From the Coronavirus: A Banking Crisis | A New Hurt in Italy From the Coronavirus: A Banking Crisis |
(about 11 hours later) | |
LONDON — As Italy confronts the ravages of an unexpected threat in the coronavirus, fears are intensifying that the economic damage could trigger a far more familiar danger — a banking crisis. | LONDON — As Italy confronts the ravages of an unexpected threat in the coronavirus, fears are intensifying that the economic damage could trigger a far more familiar danger — a banking crisis. |
Italy’s banks and their formidable piles of bad loans have long constituted a central worry in an economy that has not grown in more than a decade. The nation’s lenders are at once big enough, sufficiently integrated with the world and adequately shaky to pose a constant menace to the global financial system. | Italy’s banks and their formidable piles of bad loans have long constituted a central worry in an economy that has not grown in more than a decade. The nation’s lenders are at once big enough, sufficiently integrated with the world and adequately shaky to pose a constant menace to the global financial system. |
European leaders habitually fret that Italy’s banks are but one misfortune away from a calamity that could force them to mount a rescue, lest a shock felt in Milan swell into a continental emergency. | European leaders habitually fret that Italy’s banks are but one misfortune away from a calamity that could force them to mount a rescue, lest a shock felt in Milan swell into a continental emergency. |
Now, an epic misfortune is playing out. | Now, an epic misfortune is playing out. |
With Italy effectively quarantined, its industry shuttered, and consumer spending practically nil beyond food and medicine, the economy is expected to contract by 3 percent this year, according to a recent forecast from Oxford Economics. | With Italy effectively quarantined, its industry shuttered, and consumer spending practically nil beyond food and medicine, the economy is expected to contract by 3 percent this year, according to a recent forecast from Oxford Economics. |
That may yet prove optimistic, the research institution added. Measures aimed at stopping the spread of the coronavirus — both in Italy and around the world — could further depress economic activity, making a global recession increasingly likely. | That may yet prove optimistic, the research institution added. Measures aimed at stopping the spread of the coronavirus — both in Italy and around the world — could further depress economic activity, making a global recession increasingly likely. |
If the downturn persists, many Italian companies could find themselves short of the profits needed to repay their loans. That could weaken bank balance sheets to the point of crisis. | If the downturn persists, many Italian companies could find themselves short of the profits needed to repay their loans. That could weaken bank balance sheets to the point of crisis. |
“It’s likely that banks will need to be rescued,” said Nicola Borri, a finance professor at Luiss, a university in Rome. “The economy has basically been stopped. We are probably going to see massive defaults. Clearly, Italian banks will be badly hit.” | “It’s likely that banks will need to be rescued,” said Nicola Borri, a finance professor at Luiss, a university in Rome. “The economy has basically been stopped. We are probably going to see massive defaults. Clearly, Italian banks will be badly hit.” |
He was less troubled by the prospect of a rescue from Europe than about the conditions that might accompany such aid. European officials have long portrayed Italy as an irresponsible citizen that has enabled banks to lend recklessly to avoid the humiliation and pain of consigning uncompetitive companies to bankruptcy. Europe has used crises as a means of imposing harsh medicine. It might condition a rescue on Italian banks limiting their lending as they work to rebuild their stocks of capital. That could deprive even strong companies of needed credit. | He was less troubled by the prospect of a rescue from Europe than about the conditions that might accompany such aid. European officials have long portrayed Italy as an irresponsible citizen that has enabled banks to lend recklessly to avoid the humiliation and pain of consigning uncompetitive companies to bankruptcy. Europe has used crises as a means of imposing harsh medicine. It might condition a rescue on Italian banks limiting their lending as they work to rebuild their stocks of capital. That could deprive even strong companies of needed credit. |
“That can prolong or deepen the recession,” Mr. Borri said. “More than a concern for the default of the banks, I’m concerned about the consequences that weak banks have on the economy.” | “That can prolong or deepen the recession,” Mr. Borri said. “More than a concern for the default of the banks, I’m concerned about the consequences that weak banks have on the economy.” |
For Italy, worries about the banks are unfolding just as the country confronts a full-blown public health disaster that has taken the lives of more than 2,100 people, overwhelming the medical system and forcing doctors to engage in the grisly calculus of determining who lives and who dies. | For Italy, worries about the banks are unfolding just as the country confronts a full-blown public health disaster that has taken the lives of more than 2,100 people, overwhelming the medical system and forcing doctors to engage in the grisly calculus of determining who lives and who dies. |
The pandemic arrived at a time when traditional anxiety over Italian banks was waning. Total bad loans in the system had shrunk from 350 billion euros in 2015 to less than €200 billion by the end of 2018 (the most recent data), according to the Bank of Italy, the country’s central bank. | The pandemic arrived at a time when traditional anxiety over Italian banks was waning. Total bad loans in the system had shrunk from 350 billion euros in 2015 to less than €200 billion by the end of 2018 (the most recent data), according to the Bank of Italy, the country’s central bank. |
Over the same period, bad loans shrank from 18 percent of total bank loans to 8 percent, according to the World Bank. | Over the same period, bad loans shrank from 18 percent of total bank loans to 8 percent, according to the World Bank. |
But beneath that positive development, another trend has played out that may enhance the vulnerabilities of the Italian economy: The banks increased their purchases of Italian government debt, amplifying their vulnerability to broader national troubles. | But beneath that positive development, another trend has played out that may enhance the vulnerabilities of the Italian economy: The banks increased their purchases of Italian government debt, amplifying their vulnerability to broader national troubles. |
By February 2019, Italian banks had increased their holdings of Italian government bonds by 14 percent over the previous year, according to Moody’s, the credit rating agency. That revived concerns about the so-called doom loop — the intertwining of the government’s financial health and that of the banks, with fears about each reinforcing concerns about the other. | By February 2019, Italian banks had increased their holdings of Italian government bonds by 14 percent over the previous year, according to Moody’s, the credit rating agency. That revived concerns about the so-called doom loop — the intertwining of the government’s financial health and that of the banks, with fears about each reinforcing concerns about the other. |
Italian government debt exceeds 131 percent of its annual economic output, according to the International Monetary Fund. That is the second-highest level in Europe, trailing only Greece. When investors grow anxious about the public debt burden, they demand higher rates of interest for government bonds. That depletes the value of the bonds, because yields and prices move in opposite directions. | Italian government debt exceeds 131 percent of its annual economic output, according to the International Monetary Fund. That is the second-highest level in Europe, trailing only Greece. When investors grow anxious about the public debt burden, they demand higher rates of interest for government bonds. That depletes the value of the bonds, because yields and prices move in opposite directions. |
As banks see the value of their bonds decrease, they face pressure to cut back on lending to ensure they have enough capital. That deprives companies of credit, weakening economic growth, which in turn amplifies broader fears about the ability of the government to stay current on its debt. Investors are then prompted to demand even more in compensation for the risks of buying Italian bonds. | As banks see the value of their bonds decrease, they face pressure to cut back on lending to ensure they have enough capital. That deprives companies of credit, weakening economic growth, which in turn amplifies broader fears about the ability of the government to stay current on its debt. Investors are then prompted to demand even more in compensation for the risks of buying Italian bonds. |
If banks find themselves in deep enough trouble, they might be forced to raise cash by unloading whatever assets they own — government bonds included. That, too, could lift borrowing costs. If the sales were large enough, they could shift the emergency from the banking system to the government itself. | If banks find themselves in deep enough trouble, they might be forced to raise cash by unloading whatever assets they own — government bonds included. That, too, could lift borrowing costs. If the sales were large enough, they could shift the emergency from the banking system to the government itself. |
The coronavirus pandemic has already lifted borrowing costs on anticipation that a recession would force the government to shell out more for medical care, unemployment benefits and support to flagging industries. Since the beginning of the year, the yield on 10-year Italian government bonds has more than doubled from 0.9 percent to 2.2 percent. | The coronavirus pandemic has already lifted borrowing costs on anticipation that a recession would force the government to shell out more for medical care, unemployment benefits and support to flagging industries. Since the beginning of the year, the yield on 10-year Italian government bonds has more than doubled from 0.9 percent to 2.2 percent. |
The increase in the cost of credit at once indicates alarm and limits the ability of the government to mount a useful response. | The increase in the cost of credit at once indicates alarm and limits the ability of the government to mount a useful response. |
Updated June 16, 2020 | Updated June 16, 2020 |
The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | |
The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
This week, the government approved a package of spending worth €25 billion (about $28 billion) to bolster the medical system while helping businesses and households suffering the economic costs of the pandemic. | This week, the government approved a package of spending worth €25 billion (about $28 billion) to bolster the medical system while helping businesses and households suffering the economic costs of the pandemic. |
Economists say a far more robust package is probably required, perhaps 10 times as large. But Italy’s government is afraid to spend more for fear of spooking international investors, who could dump government bonds and drive up borrowing costs. | Economists say a far more robust package is probably required, perhaps 10 times as large. But Italy’s government is afraid to spend more for fear of spooking international investors, who could dump government bonds and drive up borrowing costs. |
“The economy is collapsing, and government debt will go up,” said Nicola Nobile, chief Italian economist for Oxford Economics, based in Milan. “Italy doesn’t have massive fiscal space to spend money on banks. If things get worse, something either at the European level or the international level will have to be agreed.” | “The economy is collapsing, and government debt will go up,” said Nicola Nobile, chief Italian economist for Oxford Economics, based in Milan. “Italy doesn’t have massive fiscal space to spend money on banks. If things get worse, something either at the European level or the international level will have to be agreed.” |
One obvious source of support is the European Central Bank, which could buy Italian government debt as a means of limiting borrowing costs. | One obvious source of support is the European Central Bank, which could buy Italian government debt as a means of limiting borrowing costs. |
But the head of the central bank, Christine Lagarde, last week appeared to rule out that objective, saying this was not the institution’s job. That sent borrowing costs soaring and Italian stocks plummeting, while enraging the Italian government. The next day, Ms. Lagarde apologized for what she characterized as poor communication, while affirming her commitment to the European common good. | But the head of the central bank, Christine Lagarde, last week appeared to rule out that objective, saying this was not the institution’s job. That sent borrowing costs soaring and Italian stocks plummeting, while enraging the Italian government. The next day, Ms. Lagarde apologized for what she characterized as poor communication, while affirming her commitment to the European common good. |
On Tuesday, Italy’s second-largest bank, Intesa Sanpaolo, said it was providing €15 billion in new credit for small and medium-size businesses whose operations have been hurt by the pandemic. | On Tuesday, Italy’s second-largest bank, Intesa Sanpaolo, said it was providing €15 billion in new credit for small and medium-size businesses whose operations have been hurt by the pandemic. |
“We have a duty in this phase of extreme urgency to commit every resource, to give maximum support to Italian companies,” said the company’s chief executive, Carlo Messina, in a statement. “Intesa Sanpaolo has the size, solidity and widespread presence that enable extraordinary interventions throughout the country.” | “We have a duty in this phase of extreme urgency to commit every resource, to give maximum support to Italian companies,” said the company’s chief executive, Carlo Messina, in a statement. “Intesa Sanpaolo has the size, solidity and widespread presence that enable extraordinary interventions throughout the country.” |
But Intesa’s fate is linked inextricably to Italy’s. The bank’s lending is almost entirely focused on Italian companies. Its stock has lost more than one-fourth of its value since the pandemic emerged. | But Intesa’s fate is linked inextricably to Italy’s. The bank’s lending is almost entirely focused on Italian companies. Its stock has lost more than one-fourth of its value since the pandemic emerged. |
“We expect a large recession,” said Mr. Borri, the finance professor. “And Italian banks are typically very concentrated on the Italian economy. When the Italian economy goes bad, the banks don’t do well.” | “We expect a large recession,” said Mr. Borri, the finance professor. “And Italian banks are typically very concentrated on the Italian economy. When the Italian economy goes bad, the banks don’t do well.” |