As coronavirus has spread globally since February, a tenuous balancing act has been attempted in Britain and much of the rest of the world. Governments have assured populations that necessary precautions and preparations are being undertaken to deal with the potential pandemic. The media has, by and large, resisted the temptation to sensationalise and overdramatise the crisis. Most of the rites of early spring have been observed: at the weekend, London train stations thronged with English and Welsh rugby supporters. A dachshund called Maisie won Crufts.
This approach has been understandable, as efforts and hopes are concentrated on containing the virus. But this strange state of pseudo-normality was shattered on Monday. Following a Cobra meeting – chaired for the first time by Boris Johnson – the government’s chief medical officer, Prof Chris Whitty, said that coronavirus in Britain will soon spread “really quite fast”. Meanwhile, global stock markets collapsed at a rate that recalled Black Monday in 1987. Increasingly, the sense is one of queasily living on the brink of a crisis that will be both lethal and transformative. Monday’s market meltdown suggested it will shine a pitiless light on some of the economic assumptions and complacencies of the post-crash decade.
The immediate source of investor panic around the world was the decision by Saudi Arabia to enter into an oil price war with Russia. At a time when demand was plummeting due to coronavirus, this was dire news for oil companies. But the near-hysteria that broke out among traders in stock markets across the world also had a deeper explanation.
The consequences of a pandemic threaten to stress-test the global economy in unprecedented ways, disrupting both supply and demand. There is justified fear that nation states are in no shape to cope with the kind of economic shock in prospect. Across the west, interest rates remain cut to the bone, but globally growth has been slowing for some time. Analysts have warned that buoyant stock market figures, boosted by quantitative easing, have reflected excessive and unfounded optimism on the part of investors. Speculators have been content to enjoy the spoils of booming asset prices that bore little relation to the underlying strength of the real economy. The risk now is that a long-predicted correction will occur in the catastrophic context of societies that have ground to a halt as the result of a pandemic.
Italy, the European country most badly affected by the outbreak, has flatlined economically for 20 years, and its most productive region is at the eye of the storm. As the epidemic within its borders worsens, calls on Brussels to relax eurozone-wide, legally binding restrictions on government spending will become deafening. Other chickens are coming home to roost. As balancing budgets became an obsession in western democracies, policies of fiscal stimulus through public spending went into deep hibernation. The result has been the depletion and degrading of the societal safety nets that will be needed to mitigate the crisis as it deepens.
In Britain, 10 years of austerity have left public services in a fragile, vulnerable state. Starving the NHS of the resources it needed has left it exposed on multiple fronts, not least insufficient recruitment of doctors and a shortage of beds for critically ill patients. In the locked-down northern Italian region of Lombardy, 13% of infected patients have required intensive care treatment for two to three weeks. A shortage of beds and ventilators could force intolerable decisions of life and death on doctors obliged to allocate needlessly scarce resources.
On Wednesday, the new chancellor, Rishi Sunak, will deliver his first budget in a context of high anxiety. Monday’s traumatic day in the City served notice of the gravity of the situation the country could face. Mr Sunak needs to demonstrate that he is prepared to do what it takes to properly fund the NHS’s response, ensure cash flows to businesses and reassert the neglected role and responsibilities of the state in our national life. The coming crisis requires nothing less than a fiscal revolution in Westminster.