European leadership and institutional limits

We talk to Adam Tooze in New York about the possible impact of coronavirus on the global financial and political system. How does this crisis compare to the financial crisis of 2008? What are the implications for the future of the Eurozone? And what have we learned already about the shift in power from the US to China? Plus we talk to Helen Thompson in London about how it intersects with the oil price war between Saudi Arabia and Russia. The first of a series of conversations about the biggest event of our times. **Updated overnight**

Talking Points: 

This crisis has revealed the fundamental weakness in the Eurozone. Lagarde’s initial comments re-exposed this fundamental faultline. 

• The central question facing the ECB is ‘what is its role with regard to spreads?’ 
• But over the course of the day, the panic in the markets seems to have led Frankfurt to reevaluate: they’ve come forward with a remarkable bond buying program steered towards buying both sovereign bonds and corporate debt.
• The ECB is now saying that it will lift caps if necessary. This is an effort to take the sovereign risk for the Italians out of the equation and also relieve pressure on the French and the Spanish. 

The fundamental weakness in the Eurozone is one of the continuities, but no one really expected it to be exposed.

• Italy wasn’t a causal driver of the crisis of 07/08, but it became collateral damage. It has not recovered. That failure is being exposed.
• There are also novel elements, for example, the explosion of corporate debt since 2008. 
• The Eurozone banks aren’t in great shape, but it’s better than ‘07/’08. The question is whether the Eurozone has the stomach for another round of collective efforts.

The inequities in the US health system are severe and will be exposed in this crisis.

• The current crisis is happening on a much shorter timescale than ‘07/’08.
• The impact on working life has been even more rapid.

The spread of this disease from China is not unusual but the ability of the Chinese government to bend this curve so quickly signals the power of state capacity.

• Beijing’s fiscal and monetary stimulus in ‘08/09 should have been a wake up call. This was a key turning point.

What happened to oil prices? 

• OPEC Plus broke down, in particular, the relationship between Russia and Saudi Arabia. 
• The big question is the politics: the US shale industry can’t cope with prices this low. 
• A lot of things that have been destabilizing over the last decade are crashing into each other right now.

Mentioned in this Episode: 

• Adam talks about Crashed with David and Helen (full transcript)
• Lagarde’s second statement

Further Learning: 

• More on the recently announced ECB bond buying program from the FT
• Adam on Europe (from January)
• Adam on the global shutdown 
• Lucia’s piece for the New York Times on Italy and bond spreads

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