Coronavirus front line in northern Italy

The area of Lombardy where the Coronavirus has struck is among the most productive in Europe and, more to the point, one of the very few productive areas in Italy

The Coronavirus
Tim Hedges
On 28 February 2020 10:34

I am writing from Umbria in central Italy. The area around Piacenza, three hours’ drive to the north, has more than 600 cases of Coronavirus.

The governor of Lombardy is in isolation. To the east, there have been cases in Abruzzo. There are further isolated cases in the south. Here we are in a sort of no-man’s land, safe for the moment, but the front line is in every direction you look.

Down the road are two Chinese shops, selling everything from mops to pencils to Tiger Balm. No one goes into them now. A child was taken into isolation in the hospital in Perugia but it proved to be just influenza. People were shocked to hear of a local town having suspects, but it turned out to be a town in the north with the same name. There is no panic, but there is worry.

Italians are fatalistic and not a little hypochondriacal, a bad combination in the present time. Life has heaped many problems on them in the last 150 years; expecting the worst they check their children for the slightest snuffle. There is general belief in the power of their excellent health service to cope with anything thrown at them, but people are understandably nervous.

What will be of particular concern to the government is the location in which all this is taking place. Concern for the citizenry aside, it would be of less concern if it had been in the south where huge swathes of people are already economically inactive. The area of Lombardy where the virus has struck is among the most productive in Europe and, more to the point, one of the very few productive areas in Italy.

Northern Italy consists of a succession of small to medium sized enterprises, many privately owned, not unlike northern Germany. They tend to be grouped around separate industries and a small virus cluster could interrupt local supply chains endangering hundreds of thousands of jobs.

The government has already taken commendably strong action in isolating several small towns in the same way the Chinese isolated whole cities. It is more difficult with Italians: several people went off to their holiday homes, on the grounds that if you are going to be isolated you may as well be isolated somewhere nice. The police tried to explain that this wasn’t quite the point but Italians have found ways over the years to skate round regulations.

The Government has closed the furnishings exhibition in Milan, which generates millions for local businesses. It has also, bizarrely, closed the carnival in Venice, the only occasion in Italy where people habitually wear masks.

But Italy is going to experience some stormy weather. The economy was already on the verge of its umpteenth recession this century. Coronavirus will tip it over. And all the while the puritans of the European Central Bank are frowning at the budget deficit.

Italy must ignore Brussels and give its economy the liquidity it needs. Companies need loans to get them through this, whilst the banks have made such a mess of their balance sheets (lending to friends, poor credit decisions) that they have little room in their capital ratios and can scarcely fulfil their function. The Bank of Italy needs to step in and tide the country over.

The danger to an industrialised nation of such a virus is not just the cost of treating it. The downside lies in interruptions to the production/delivery cycle. Italy needs to suspend banking capital adequacy rules, provide a temporary reduction in corporate taxes, particularly for small businesses, and impose a reduction in VAT to get the consumer spending.

The Coronavirus will go away, it is not with us forever. It may well last as a problem until April/May, however, and we need to make sure that when it does go away it hasn’t taken large chunks of Italian and other European industry with it.

Tim Hedges, The Commentator's Italy Correspondent, had a career in corporate finance before moving to Rome where he works as a freelancewriter, novelist, and farmer. You can read more of his articles about Italy here

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