With Italy in the midst of its biggest lockdown since the second world war, thoughts have started to turn to how the government is going to financially respond to the crisis, or indeed what it can actually do. The whole of Italy - a country of some 60 million people - has been placed under quarantine. The virus has killed 168 more people in the past 24 hours alone.
The Italian government is going to have to significantly add to the EUR7bn in tax cuts and emergency aid it originally announced in response to the coronavirus outbreak. This initial allocation of money was aimed at the north’s ‘red zone’, clustered around Lombardy, which was hardest hit by coronavirus to start with. Government officials within the 5-Stars Movement, which shares the coalition with the Democrats, believed the money allocated would last ‘no longer than a couple of months’ and that even multiples of this amount would probably not be enough in the medium-term to tackle the crisis. The government will need to revise its deficit targets. Italy already has the second highest debt-to-GDP ratio in the EU at nearly 135% (Greece’s is an eye watering 182%). Even without more spending, it looked like the economic contraction would mean Italy failed to meet the EU's budget deficit limit of 3% of GDP. However, over the weekend the European Commission did tell the Italian government that its spending to respond to the outbreak will not be counted in calculations of European Union budget rules.
Also, it looks like its shock and awe time for the UK economy. The first part happened this morning, the BoE cut the benchmark rate by 50bps to 0.25%. It’s also been reported the Chancellor, Rishi Sunak, who has been in the job only a matter of weeks, will later unveil a massive public spending package. The rumour is that he will pledge a record GBP600bn to help power ‘a decade of growth for everybody’. Over the next 5 years, he will allocate GBP120bn per year to spend on housing, railways, research, roads and national high-speed broadband. Mr Sunak believes this would be the highest real-terms public investment since records began in the mid ‘50s.
Maybe Prime Minister Boris Johnson will get his way with what would be the jewel in the crown of all this infrastructure spending, a bridge or tunnel linking Scotland and Northern Ireland.