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The National Debt is Surging

Economists and deficit hawks have warned for decades that the United States was borrowing too much money. The federal debt was ballooning so fast, they said, that economic ruin was inevitable: Interest rates would skyrocket, taxes would rise and inflation would probably run wild.

The death spiral could be triggered once the debt surpassed the size of the U.S. economy — a turning point that was probably still years in the future.

It actually happened much sooner: sometime before the end of June.

The coronavirus pandemic, and the economic collapse that followed, unleashed a historic run of government borrowing: trillions of dollars for stimulus payments, unemployment insurance expansions, and loans to prop up small businesses and to keep big companies afloat.

But the economy hasn’t drowned in the flood of red ink — and there’s a growing sense that the country could take on even more without any serious consequences.

“At this stage, I think, nobody is very worried about debt,” said Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics and a former chief economist for the International Monetary Fund. “It’s clear that we can probably go where we are going, which is debt ratios above 100 percent in many countries. And that’s not the end of the world.”

That nonchalant attitude toward what were once thought to be major breaking points reflects an evolution in the way investors, economists and central bankers think about government debt.

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As levels of debt among rich nations like the United States and Japan have climbed relentlessly in recent decades, the cost of carrying that debt — reflected in interest rates — has tumbled, leaving little indication that markets were losing confidence in the willingness and ability of these countries to carry their financial burdens.

And since the 2008 financial crisis, traditional thinking about borrowing by governments — at least those that control their own currencies — has further weakened, as central banks in major developed markets became enormous buyers in government bond markets.

Critics repeatedly said this circular form of fiscal finance — in which one arm of the government, the central bank, basically creates the money needed to fund the arm of government that taxes and spends — would inevitably lead to a spiral of inflation, a spike in interest rates or a loss of confidence in the currencies. It didn’t.

“This is a 40-year pattern,” said Stephanie Kelton, a professor of economics and public policy at Stony Brook University and a proponent of what’s often called Modern Monetary Theory. That view holds that countries that control their own currencies have far more leeway to run large deficits than traditionally thought. “The whole premise that deficits drive up interest rates, it’s just wrong,” she said.

At the end of last year, the United States was about $17 trillion in debt — roughly 80 percent of the gross domestic product. In January, government analysts predicted that debt would approach 100 percent of the G.D.P. around 2030. But by the end of June, the debt stood at $20.53 trillion, or roughly 106 percent of G.D.P., which shrank amid widespread stay-at-home orders. (These numbers don’t count trillions more the government owes itself in bonds held by the Social Security and Medicare trust funds.)

That more than 25 percentage-point surge would represent the largest annual leap in American indebtedness since Alexander Hamilton founded the nation’s credit in the 1790s, outpacing even the debt growth at the peak of World War II, according to data from the Congressional Budget Office.

And it’s not over yet. The Treasury is expected to borrow over $1 trillion more through the end of the year — and that’s without counting another stimulus package. Republicans in Congress have pushed for a $1 trillion package, while Democrats have already passed their own plan with a price tag of more than $3 trillion.

“What’s very clear is that the U.S. economy has some room,” said Rick Rieder, global chief investment officer of fixed income at BlackRock, which manages over $7 trillion in investments for clients, including more than $2 trillion in bonds. “I would argue that we still have room now for another fiscal package.”

Talks on such a package are currently stalled, with the surging levels of debt often cited by Republicans lawmakers as a reason to oppose further fiscal action. But even the current situation would have been unthinkable not long ago.

Economists have long told a story in which debt levels this large inevitably ignited an economic doom loop. Towering levels of debt would freak out Treasury bond investors, who would demand higher interest rates to hand their cash to such a heavily indebted borrower. With its debt payments more expensive, the government would have to borrow even more to stay current on its obligations.

Neither tax increases nor spending cuts would be attractive, because both could slow the economy — and any slowdown would hurt tax revenues, meaning the government would have to keep borrowing more. These scenarios frequently included dire predictions of soaring interest rates for business and consumer borrowing and crushing inflation as the government printed more and more money to pay what it owed.

But instead of panicking, the financial markets are viewing this seemingly bottomless need for borrowing benignly. The interest rate on the 10-year Treasury note — also known as its yield — is roughly 0.7 percent, far below where it was a little over a year ago, when it was about 2 percent.

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Expectations for economic growth and inflation are the crucial drivers of interest rates, and such low rates very likely mean investors expect a long period of piddling growth. But they also signal that investors see almost no chance that the United States, which has one of the best track records of any borrower on earth, will stiff them by defaulting.

One big reason: As during World War II, much of the money the government has borrowed is coming from an arm of the government itself, the Federal Reserve. The central bank has increased its holdings of Treasury securities by more than $1.8 trillion since March, effectively creating all the new money it needed to buy them. For many years, such arrangements were viewed as something that was done in wobbly emerging market economies.

But since the financial crisis of 2008 and the deep recession that followed, central banks in the richest nations in the world — the Fed, as well as the Bank of Japan, the Bank of England and the European Central Bank — have printed large amounts of money to buy government bonds and spur economic growth by lowering long-term interest rates.

The bond-buying programs in the United States were some of the world’s most aggressive. Critics said they would lead to disaster, with the increase in dollars setting off a surge of inflation similar to the one that dogged the economy in the 1970s. But inflation has stayed low, consistently coming in below the 2 percent target set by the Federal Reserve.

That’s not to say conditions will stay that way. Earlier this month, the price of gold, typically bought by investors as a hedge against inflation, rose above $2,000 an ounce — a record — suggesting that some could be buying a bit of insurance against a sharp rise in the future.

There’s a debate about whether a large amount of government debt hamstrings economic growth over the long term. Some influential studies have shown that high levels of debt — in particular debt-to-G.D.P. ratios approaching 100 percent — are associated with lower levels of economic growth. But other researchers have found that the relationship isn’t causal: Slowing economic growth might lead to higher levels of debt, rather than vice versa.

Others have found that they don’t see much of a relationship between high levels of debt and slow economic growth for rich developed countries. But they do see such a relationship for poorer developing economies, which are much more reliant on foreign investors, who could be spooked by rising levels of debt. Such situations have repeatedly played out in emerging markets over the years.

Even so, the experience over the last decade has drastically shifted the way economists and investors think about how the United States funds itself.

“Fiscal constraints aren’t nearly what economists thought they were,” said Daniel Ivascyn, chief investment officer for PIMCO, which manages nearly $2 trillion in assets, mostly in bonds. “When you have a central bank essentially funding these deficits, you can take debt levels to higher debt levels than people envisioned.”

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In Argentina’s Debt Negotiations, a Kinder, Gentler Capitalism Faces a Test

LONDON — Laurence D. Fink presents himself as the vanguard of a progressive form of capitalism in which profits are not everything: The enlightened money is supposed to press for environmental and social protection.

As the chief executive of BlackRock, the world’s largest investment management company, Mr. Fink oversees more than $7 trillion. He has steered some of that fortune to the crisis-wracked nation of Argentina, purchasing government bonds.

But as Argentina — in default since May — seeks forgiveness on $66 billion worth of bonds, Mr. Fink’s oft-espoused faith in “stakeholder capitalism” is colliding with traditional bottom line imperatives. Though poverty is soaring in Argentina as the pandemic worsens a punishing economic downturn, BlackRock is opposing a settlement proposed by the government and rallying other creditors to reject it, while holding out for a marginally improved deal.

Mr. Fink has inserted himself into the negotiations, speaking twice with Argentina’s economy minister, according to three people familiar with the talks. The government and its creditors are only three pennies on the dollar apart on their proposed terms.

“The BlackRock guys have gotten on the phone with a number of significant creditors,” said Hans Humes, president of Greylock Capital Management, another creditor at the table. “They convinced a lot of people that if we all stepped up behind their deal, the Argentines would take it. It’s turned into a brutal standoff.”

BlackRock’s stance has put it at odds with the International Monetary Fund, which gave Argentina a rescue package worth more than $50 billion two years ago, and has supported Argentina’s proposal as an Aug. 4 deadline approaches.

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Credit…Krista Schlueter for The New York Times

The fund’s managing director, Kristalina Georgieva, has praised Argentina’s approach and emphasized that bondholders must agree to substantial debt forgiveness so Argentina can manage future payments. Fund officials have assured the government that they will forge a new bailout if Argentina cannot complete a deal.

The alternative would be an unruly default that would prevent Argentina from tapping international markets, block its companies from gaining access to capital and deepen the recession.

BlackRock’s position has also put it crosswise with a group of prominent economists, including a pair of Nobel laureates, Joseph Stiglitz and Edmund Phelps. In May, they issued a public letter urging bondholders to come to terms with the government.

“Argentina has presented a responsible offer to creditors that reflects the country’s capacity to pay,” declared the letter, which was signed by 138 economists, among them Carmen Reinhart, now the chief economist at the World Bank.

In a statement, BlackRock said it has been working diligently to achieve a settlement, while recouping as much as possible for its clients. Roughly two-thirds of the investments it manages comprise the retirement savings of workers around the world.

“In this restructuring process, our fund managers are balancing a fiduciary obligation to make decisions in the best interest of these savers, while at the same time recognizing the difficult circumstances facing the Argentine government, including the challenges posed by Covid-19,” the statement said.

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Credit…Juan Ignacio Roncoroni/EPA, via Shutterstock

The standoff in Argentina reflects the complexity of debt negotiations in an era in which regular people are effectively at the table. In decades past, bonds issued by developing countries were overwhelmingly controlled by major banks. When governments could not pay, bank chiefs hammered out a deal. Today, investors holding emerging market bonds run the gamut from specialized funds with high tolerance for risk to conservative pension funds.

That Mr. Fink’s company is playing a primary role in pressuring Argentina contrasts with his campaign to make business a force for social progress.

Two years ago, Mr. Fink — who has been mentioned in news reports as a potential Treasury secretary in a Biden administration — wrote an open letter to the chief executives of major corporations urging them to focus on social, labor and environmental concerns.

“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” he wrote.

Last year, Mr. Fink signed the Statement on the Purpose of a Corporation crafted by the Business Roundtable, an association of American chief executives. It pledged “a fundamental commitment to all of our stakeholders.”

In January, Mr. Fink wrote another letter to C.E.O.s warning that companies that fail to address climate change would be punished in the marketplace.

BlackRock has launched funds tailored to so-called impact investing, with money directed at advancing social and environmental goals.

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Credit…Remo Casilli/Reuters

Argentina is now consumed with stemming an alarming increase in poverty. Once among the richest countries on earth, it has defaulted on its government debt nine times.

Argentina’s history has been dominated by populist governments that have won political favor by dispensing subsidies and cash to the masses in brazen disregard for budget arithmetic, yielding chronic inflation and frequent crises.

The last government, headed by President Mauricio Macri, assumed power in 2015 with a mandate to restore discipline toward regaining the confidence of international markets, while also showing compassion to the poor through social spending.

Among those impressed was Mr. Fink. Six months after Mr. Macri took office, the BlackRock chief said his administration “has really shown what a government can do if it is focusing on trying to change the future of its country.”

In the end, Mr. Macri acquired a reputation for muddling through, failing to produce growth while borrowing anew.

When a new president, Alberto Fernández, took office last year, many assumed that populism was back. But Mr. Fernández quickly reassured the I.M.F. and key creditors that he was a pragmatist intent on securing a workable debt settlement.

The I.M.F. had long been accused of wielding a single blunt instrument in the face of crisis — austerity. Its rescue package in Argentina two decades ago imposed crippling cuts to government programs, sowing enduring bitterness. Ms. Georgieva, the fund’s managing director, has sharpened a focus on protecting countries from impossible debt burdens.

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Credit…Juan Ignacio Roncoroni/EPA, via Shutterstock

BlackRock is part of a consortium called the Ad Hoc Argentine Bondholder Group, which controls about one-fourth of the bonds.

The Ad Hoc group has struck a unified front in rejecting the government’s latest offer, which would pay out 53 cents on the dollar value of the bonds. Last week, it presented its own proposal seeking improved terms — more than 56 cents on the dollar.

In a letter sent Monday to Argentina’s economy minister, Martín Guzmán, the group said it had gained the support of a majority of all bondholders, giving it the power to block the deal. Under the bond covenants, an agreement to write down their value must win the support of the holders of two-thirds of their value.

In a statement, the Ad Hoc group said it was operating in the interest of the Argentine public by seeking a deal that would “allow re-access to capital markets and encourage further investment.”

But some creditors have publicly supported the government’s proposal.

“Argentina has made a reasonable offer, which I believe the creditors should accept, especially in light of the health and poverty situation in the country,” said Mohamed A. El-Erian, chief economic adviser at Allianz SE, the parent company of Pacific Investment Management Company, one of the world’s largest bond managers. He has been advising a creditor at the table, Gramercy Funds Management LLC, an emerging markets specialist and serves as its chairman.

Gramercy has concluded that differences between the government’s offer and the Ad Hoc group’s proposal are trivial compared with the risk of a comprehensive default that would diminish the value of Argentine bonds, subject creditors to years of potential litigation and intensify the nation’s crisis.

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Credit…Esteban Collazo, via Agence France-Presse — Getty Images

Additional debt forgiveness also enhances the likelihood that Argentina can manage its future payments, lifting the value of outstanding bonds, and lowering borrowing costs for Argentine companies.

“For three points you’re willing to lose 20 or 30,” said Mr. Humes, the Greylock president. “It’s just insanity. It’s unfortunate when egos and inexperience get in the way of a pragmatic solution.”

Some say the government overplayed its hand, antagonizing creditors with an unreasonably low opening offer — less than 40 cents on the dollar.

“Guzman started off with a very lowball offer,” said Siobhan Morden, a Latin America bond analyst at Amherst Pierpont Securities, an independent broker. “This has been an unnecessary distraction for months that could have been avoided if the opening offer had been more reasonable.”

Negotiations were conducted via Zoom, involving dozens of different creditors. BlackRock’s representatives clashed with Argentina’s economy minister, Mr. Guzmán, a 37-year-old economist who studied with Mr. Stiglitz at Columbia University.

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Credit…Juan Mabromata/Agence France-Presse — Getty Images

In May, Mr. Fink called Mr. Guzmán to try to break the impasse, suggesting that a deal could be had if the government lifted its offer to the range of 50 to 55 cents on the dollar, the people familiar with the talks said.

In private consultations with BlackRock, the government offered 50 cents. But BlackRock and its Ad Hoc group held out for more.

Mr. Fink complained that it was unfair that private creditors were swallowing all the losses, arguing that the I.M.F. should forgive some of its loans — a non-starter.

In early July, Mr. Guzmán sweetened the terms, offering 53 cents on the dollar. That won the support of several creditors, including Gramercy and Greylock.

By then, the pandemic was deepening Argentina’s recession just as the government required extra funds for the public health emergency. But BlackRock began a behind-the-scenes campaign to block the deal.

The government has insisted that its offer is final. With child poverty exceeding 50 percent, officials say, paying more to creditors would amount to transferring wealth from people who have almost nothing to international investors.

On a recent morning, about 100 families showed up at a soup kitchen 25 miles west of Buenos Aires — more than twice as many as in March. Among them was Ángel Ariel Coronel, a plumber who lives nearby with his wife and their 2-year-old son. A strict lockdown imposed by the government has halted the construction projects where he has worked.

“My wife was a bit embarrassed about having to come here,” said Mr. Coronel as he waited for a portion of steaming lentils. “But I don’t care. We need the help. I haven’t worked a day since this whole thing started.”

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Credit…Natacha Pisarenko/Associated Press

Peter S. Goodman reported from London and Daniel Politi from Buenos Aires.

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A Hedge Fund Bailout Highlights How Regulators Ignored Big Risks

WASHINGTON — As the coronavirus began shuttering the global economy in March, critical parts of U.S. financial markets edged toward collapse. The shock was huge and unexpected, but the vulnerabilities were well known, the legacy of risk-taking outside of regulatory reach.

To head off a devastating downward spiral, the Federal Reserve came to Wall Street’s rescue for the second time in a dozen years. As investors sold a vast array of holdings and rushed to the comparative safety of cash, the Fed pledged to become a buyer of last resort to restore calm to critical markets.

That backstop bailed out many people and investment firms, including a class of hedge funds that had been caught on the wrong side of a trade with ample risks. The story of that trade — how it went wrong and how it was salvaged — offers a cautionary tale about important issues Congress did not address in the 2010 Dodd-Frank financial law and the Trump administration’s hands-off approach to regulation.

A decade after Dodd-Frank, America’s sweeping post-2008 crisis fix, was signed into law, commercial banks like JPMorgan Chase & Company and Bank of America are better regulated and safer, but they may be less willing to help smooth over markets in times of stress. Tougher regulation in the formal banking sector has pushed risk-taking to the shadowy corners of Wall Street — areas that Dodd-Frank left largely untouched.

In addition, the powers policymakers have to deal with persistent vulnerabilities have been undermined by Trump administration officials who came into office seeking to weaken financial rules. Treasury Secretary Steven Mnuchin, who leads a panel created by Dodd-Frank to identify financial risks, has moved to release big financial firms from oversight and abandoned an Obama-era working group that was examining hedge fund risks.

The result is a still-brittle system, one in which financial players rake in profits in good times but the government is forced to save them or leave the economy to suffer when things go awry.

“It’s very dangerous to have a regime in which you know this can happen,” Janet L. Yellen, the former Federal Reserve chairwoman, said in an interview. “The Fed did unbelievable things this time.”

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Credit…Anna Moneymaker for The New York Times

Relying on the central bank to save the day is not a long-term solution, she said. There is no guarantee that the Fed and the Treasury Department, which must provide the money to support many of the central bank’s emergency programs, will be so aggressive in the future.

Hedge funds are one risk left unaddressed. Some regulators had warned for years that a certain type of hedge fund — so-called relative value funds — could struggle in a stressed market. Officials also warned that they could not tell how big a risk such funds posed because they did not have enough information about their trades and how much money they were borrowing.

Of particular concern: The hedge funds were using trading strategies similar to those employed by Long-Term Capital Management, a fund that collapsed in 1998 and nearly caused a financial meltdown.

The bet hedge funds were making earlier this year was simple enough. Called a basis trade, it involved exploiting a price difference in the Treasury market, generally by selling Treasury futures contracts — promises to deliver a bond or note at a set price on a set date — and buying the comparatively cheap underlying securities.

The hedge funds made a tiny return as the price of a security and its futures contract converged. To turn those mini payoffs into real money, they tapped a form of short-term borrowing, called repo, and used it to amass huge holdings of Treasuries. Such trades are often incredibly leveraged.

The problems started as markets became very volatile in mid-March. The repo funding essential to the trades was suddenly hard to come by as financial institutions that provide the loans backed away. Historical pricing patterns broke down, and many trades were no longer profitable. Some hedge funds were forced to dump government debt.

Banks could have acted as stress relievers by buying securities and finding buyers. But they were already holding many government bonds, and could not handle more in part because of regulations established after 2008. Everyone was selling — ordinary investors, foreign central banks and hedge funds. Hardly anyone was buying.

The market for U.S. government debt, the very core of the global financial system, was grinding to a standstill.

“The severe dislocation in one of the world’s most liquid and important markets was startling,” the Bank for International Settlements, a bank to central banks, wrote in its annual report last month.

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Credit…Anna Moneymaker/The New York Times
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Credit…Ting Shen for The New York Times

The Fed stepped in to avert catastrophe, pledging during an emergency Sunday afternoon meeting to buy huge sums of government-backed bonds.

It remains unclear how big of a role hedge funds played in March’s meltdown — even how many and which funds were involved remains hazy. The funds are not required to disclose detailed data about the size of their bets and what and when exactly they sold. By the Bank for International Settlements’s telling, the relative value unwinding was a “key driver” of the turmoil.

Researchers writing for the Treasury Department’s Office of Financial Research said in a report that basis trades definitely went bad in March and some hedge funds sold their securities, but it is not clear how much the sales impaired Treasury market liquidity. Still, the report acknowledged that the Fed’s intervention may have prevented more dire consequences.

Michael Pedroni, an executive vice president at the Managed Fund Association, which represents hedge funds, said in a statement that “a growing body of evidence” showed that “hedge funds were able to continue providing some liquidity even as banks pulled back on providing financing” and that the funds were not a systemic risk.

While few had predicted the pandemic, many experts had long warned that the financial system was vulnerable.

Long before the turmoil this spring, the Financial Stability Oversight Council, established by Dodd-Frank, had repeatedly identified hedge fund leverage as a risk. Under the Obama administration, it formed a hedge fund working group to consider the potential risks of many hedge funds employing similar trading strategies.

On Nov. 16, 2016, the working group warned that hedge funds could be a source of instability during turbulent times.

“Forced sales by hedge funds could cause a sharp change in asset prices, leading to further selling, substantial losses or funding problems for other firms with similar holdings,” Jonah Crane, the council’s deputy assistant secretary at the time, told the group. “This could significantly disrupt trading or funding in key markets.”

The working group recommended that regulators gather more information about hedge funds, including their trades — the type of granular data missing from the filing fund managers made to the Securities and Exchange Commission, known as Form PF.

“Our recommendation was to fix Form PF so we could get the underlying data,” Mr. Crane, now a partner at the consulting firm Klaros Group, said in an interview. “These strategies we thought we saw seemed an awful lot like the Long-Term Capital Management strategies and suggested to us that one should at least be aware of who had exposure to those.”

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Credit…Jacquelyn Martin/Associated Press

The S.E.C. chairwoman at the time, Mary Jo White, agreed with the recommendation. But with a new administration coming in, there was little chance to address the issue in the last weeks of the Obama administration.

Early in 2017, Mr. Mnuchin, a former hedge fund manager, assumed control of the Financial Stability Oversight Council and the hedge fund working group was deactivated.

Richard Cordray, who sat on the council as head of the Consumer Financial Protection Bureau from 2012 to November 2017, said that once Mr. Mnuchin took over, discussion turned to relaxing oversight.

“It was clear from the beginning that he wanted to move the FSOC in a different direction, which was a deregulatory direction,” Mr. Cordray said.

A Treasury spokeswoman said that the council “continues to monitor hedge funds, as it monitors all sectors of the financial system.”

Relative value funds were not the only financial vulnerability exposed in March. Money market mutual funds, bailed out in 2008, required another rescue. Corporate bonds faced a wave of predictable ratings downgrades. That market ground to a standstill, prompting the Fed to undertake its first-ever effort to buy big-company debt.

Risks at lightly regulated financial firms “were not only predictable, but well-documented,” Lael Brainard, a Fed governor, said during a University of Michigan and Brookings Institution conference in late June. “We’ve now seen not once but twice in only 11 years” risks that were considered highly unlikely threatening the economy.

Ms. Yellen and other policymakers said Congress might need to make regulators responsible not just for individual institutions but for the overall safety of the financial system. Only the Fed has a financial stability mandate, and it applies just to banks.

“There was a flaw in Dodd-Frank,” Ms. Yellen said. “Dodd-Frank gave FSOC the responsibility for dealing with financial stability threats,” but did not convey it with the power to do much beyond cajole other regulators. “If FSOC is to be meaningful, it needs to have power of its own.”

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‘Europe Finally Got the Message’: Leaders Act Together on Stimulus

Europe, so often derided as lumbering and divided, seems to be finding its voice in the pandemic.

A powerful new dose of stimulus by the European Central Bank on Thursday, and a German emergency spending package that defied stereotypes of stingy Prussians, were the latest evidence that policymakers are responding to the pandemic with far more muscle than anyone would have predicted a few months ago.

The central bank announced it would nearly double a de facto money printing program to 1.35 trillion euros, or $1.5 trillion, to ensure a steady flow of cheap credit to eurozone consumers and businesses. And the government of Chancellor Angela Merkel of Germany, only a few months ago a fortress of fiscal conservatism, announced a package of tax cuts, aid to small business, cash payments to parents and other measures worth €130 billion — a move requiring substantial borrowing.

A week earlier, the European Commission unveiled a plan to raise €750 billion for pandemic recovery by selling bonds that would be backed by all 27 members of the European Union, a first for the bloc on such a large scale. Individual countries like France, which has announced a €45 billion stimulus program, have also exceeded expectations.

The speed of Europe’s response has come as a surprise, especially after the infighting and procrastination that marked leaders’ response to the eurozone debt crisis that began in 2010. The euro avoided collapse then only because the European Central Bank stepped in to prevent government borrowing costs from spinning out of control. This time, the central bank and governments have been acting in concert.

“Looking at what happened in the last two weeks, this is huge,” said Carsten Brzeski, chief eurozone economist at ING Bank. “It looks as if Europe finally got the message.”

The scale of the damage inflicted by the pandemic seems to have focused political leaders’ minds and helped them to overcome the divisions and indecisiveness that hampered crisis fighting in the past. The European Central Bank’s staff economists on Thursday forecast that the eurozone economy will slump by 9 percent this year, and said a deeper slump was possible.

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Credit…Adrian Petty/EPA, via Shutterstock

Christine Lagarde, the central bank’s president, said Thursday that there “are some signs of a bottoming-out” in the economic decline, but “the improvement has so far been tepid.”

Economic forecasts, she said during an online news conference, are “surrounded by an exceptional degree of uncertainty.”

At least for the moment, the technocratic approach taken by leaders like Ms. Merkel, President Emmanuel Macron of France and Ursula von der Leyen, the president of the European Commission, seems to have paid off. The rate of new coronavirus infections and deaths has dwindled in most of continental Europe, and countries have been able to start lifting their lockdowns without provoking a fresh outbreak.

Cafes in Paris are again serving patrons outdoors. Spain, which had one of the strictest lockdowns, has allowed people to leave their homes again. Italy has lifted restrictions on domestic travel and popular tourist sites like the Leaning Tower of Pisa have reopened.

Schools across Europe are reopening, though usually with reduced hours. Stores, gyms and restaurants are operating again in Germany, although patrons are required to wear masks and practice social distancing. The government in Berlin is preparing to lift restrictions on other Europeans coming into the country on June 15.

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Credit…Andrea Mantovani for The New York Times

Risks abound, and it is not out of the question that European leaders could revert to old habits. The European Commission’s €750 billion stimulus package could run into trouble as it goes through the approval process, which requires ratification by European Union countries and the European Parliament.

Although Germany has changed its approach, other traditionally frugal countries have voiced their resistance to money’s being paid out as grants instead of loans to be paid back. They include Austria, Denmark, the Netherlands and Sweden, which have become known as the “frugal four.”

But Germany’s about-face on government spending illustrates how much attitudes have changed. Only a few months ago, German leaders were lecturing other European countries on the virtues of austerity. Now, they are the continent’s big spenders.

Under the plan announced by the German government late Wednesday, households will receive €300, or about $336, per child; pay a reduced value added tax on daily items; and receive a cut in their electricity bills.

The plan also includes €5.3 billion for the social security system, €10 billion to help municipalities cover housing and other costs, and €1.9 billion for cultural institutions and nonprofit groups. It includes incentives to buy electric vehicles, but none for gas- or diesel-fired engines, which Germany’s powerful automakers had sought.

  • Frequently Asked Questions and Advice

    Updated June 2, 2020

    • Will protests set off a second viral wave of coronavirus?

      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.

    • How do we start exercising again without hurting ourselves after months of lockdown?

      Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.

    • My state is reopening. Is it safe to go out?

      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.

    • What’s the risk of catching coronavirus from a surface?

      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.

    • What are the symptoms of coronavirus?

      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.

    • How can I protect myself while flying?

      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.)

    • How many people have lost their jobs due to coronavirus in the U.S.?

      More than 40 million people — the equivalent of 1 in 4 U.S. workers — have filed for unemployment benefits since the pandemic took hold. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.

    • Should I wear a mask?

      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.

    • What should I do if I feel sick?

      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.


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