(Bloomberg Opinion) -- If you looked at a table with the number of confirmed coronavirus infections by country, you’d think Italy was in Asia.
The southern European country now has more than 140 registered cases, the third most in the world, after China and South Korea. Japan, Singapore and Hong Kong all have less. Other large European countries, such as Germany, France and the UK, only have a small fraction of the infections.
The outbreak became visible at the weekend, when Italian infections climbed steeply from just a handful of people — with the northern regions of Lombardy and Veneto hit hardest. The government has taken dramatic steps to limit contagion: locking down 50,000 people in the areas where the epidemic first emerged; closing schools and other public spaces across the north; ending the Venice carnival early; and suspending a number of Serie A soccer matches. It’s far from certain that these draconian measures will actually work.
A frightening aspect of the flareup is that no one is quite sure where it came from. Italy’s first tested case of the recent outbreak — a 38-year old from southern Lombardy — had not been in China. A friend he had met with recently, who had returned from China, tested negative for Covid-19. Some Italian experts believe the virus may have been spreading since January and fear it could be virtually impossible to track down its origins.
Giuseppe Conte, Italy’s prime minister, has admitted that his cabinet was surprised by the surge in cases. The government is under pressure to explain what went wrong; Matteo Salvini, the right-wing leader of the opposition, has called for Conte to resign.
Italy had taken strict measures before the epidemic exploded, for example by banning direct flights from China. Walter Ricciardi, a board member of the World Health Organization, fears this may have been counterproductive as it prompted people to take harder-to-track indirect routes. He believes Italy should have forced everyone coming from China to spend some time in quarantine. It’s impossible to know, however, whether this would have halted the spread.
The same can be said for the new lock-downs. A worrisome aspect of the coronavirus is that there seem to be carriers who show no symptoms of pneumonia. In fairness, Rome has little choice now but to try to find ways — harsh or not — to contain a virus that has killed more than 2,500 people, four of them in Italy. A less severe regime would probably mean even tougher steps later.
Italy’s government, and others in Europe, will face more tough choices in the future. The most severe outbreak has happened just south of Milan, where a handful of cases have been recorded. Italy’s second-largest city has shut down some of its best-known sites — the Duomo and La Scala — as well as many other public places, but there are already fears that greater restrictions may be needed. It’s looking more likely that the virus will spread in other European countries too.
The economic damage from these episodes will be significant. In Italy, the outbreak has occurred across the country’s industrial heartlands of Lombardy, Veneto and Emilia-Romagna. There will be severe disruptions to supply and demand, as people stay at home and travel less. Tourism will suffer. Ignazio Visco, governor of the Bank of Italy, told Bloomberg News that the impact of the new coronavirus on Italy could be as high as 0.25% of gross domestic product. He also called for a coordinated fiscal and monetary response from international bodies to counter the economic slowdown if the hit from the virus isn’t temporary.
Italy is not well-placed to withstand the impact. Its enormous public debt, which stood at nearly 135% of GDP in 2018, makes it harder for the government to cut taxes and increase spending at a time of recession. The inevitable cost of managing the outbreak will put the public finances under further stress. The yield on Italy’s sovereign bonds jumped on Monday morning and stocks plunged.
There are some notes of relative optimism, however. The European Central Bank is already helping all euro zone countries through its ultra-loose monetary policy, including quantitative easing and negative rates. The ECB has been too relaxed about the impact of the coronavirus, but it can shift gear. It could help push government bonds lower still, creating even more fiscal space for governments. The yield on Italy’s 10-year bond still stands at just below 1%, so there’s room for Rome to relax its fiscal policy a bit — provided the money is spent wisely.
The rest of Europe needs to do its part too. Germany and other governments have been reluctant to invest more despite the sharp slowdown in the economy. Yet the coronavirus outbreak will put manufacturers under even more strain; they have important supply links with northern Italy, just as they have with China. There’s no excuse for Berlin to continue to stand still.
Jean Monnet, one of the EU’s founding figures, said famously that “Europe would be forged in crises.” The Covid-19 outbreak may well test this notion.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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