U.S. President Donald Trump is seen on a screen under trading figures during his meeting with bank executives as traders work on the floor of the New York Stock Exchange in New York, on March 11, 2020.Andrew Kelly/Reuters
The global market meltdown began as a medical crisis. It is turning into a leadership crisis.
Judging from research reports, blog posts and tweets, many investors yearn to hear policy makers deliver a simple reassuring message. Something to this effect: We will all work together to stop this virus, while supporting workers and companies through a tough patch ahead.
Instead, Canadians are still waiting for word about what measures Ottawa will take to cushion the mounting blows from an imploding stock market and a slowing global economy.
To his credit, Justin Trudeau announced a $1-billion response fund this week to help finance research, prevention and mounting medical costs, but much broader measures to help people and businesses are nearly certainly necessary, especially as school closings spread and stock prices plummet.
Among the ideas out there are targeted help for parents who may have to stay home to look after children, aid for small businesses that may hit a cash crunch, as well as immediate financial assistance for workers in the gig economy who find themselves out of work – and out of pay – because of the virus.
So far, though, Mr. Trudeau and Finance Minister Bill Morneau have offered few specifics about what they are considering. And with Mr. Trudeau retreating into self-isolation because of possible exposure to the virus, it is not clear when more details will be forthcoming.
It could be worse. People hoping for strong leadership from the White House were instead treated this week to the disappointing spectacle of Donald Trump slamming the door shut on those nasty Europeans he suspects of importing COVID-19 into the United States.
Never mind that the World Health Organization advises against travel bans because they hinder the flow of medicines and other assistance. In Mr. Trump’s view, the best way to stop what he calls a “foreign virus” is to clamp down on the Italians and French. After all, imposing a 30-day ban on many Europeans is far easier than taking immediate action to address his own country’s glaring lack of new coronavirus testing.
To be fair, Christine Lagarde has failed to shine either. The president of the European Central Bank underwhelmed markets on Thursday when she declined to cut already-ultralow interest rates even further. Instead, she stepped up the ECB’s bond-buying program and offered cheap loans to banks to encourage them to keep lending in areas hit hardest by the virus.
It was not exactly “whatever it takes” – the famous pledge that Ms. Lagarde’s predecessor, Mario Draghi, made during the euro-zone crisis of 2012, when he promised to preserve the euro, come what may. Anyone hoping for a commitment of similar bravado had to be disappointed by Ms. Lagarde’s measured package of nudges and incentives. European stock markets kept on tumbling after she spoke.
Muddying the waters even more, Ms. Lagarde insisted that the euro-zone’s central bank was “not here to close spreads” between borrowing costs for different euro-zone countries. Her comment threw a panic into fixed-income traders, who immediately started dumping Italian government bonds. For Italy, a country facing a massive outbreak of the coronavirus, the rise in borrowing costs that may result from Ms. Lagarde’s comments is a serious blow.
The danger now is that the stumbles by the likes of Mr. Trump and Ms. Lagarde, combined with Mr. Trudeau’s lack of action, will stretch already taut nerves and add to the mounting sense that nobody is really in charge.
Investors have reason to be worried on that score.
Last week, the U.S. Federal Reserve announced an emergency cut to its key policy interest rate. A day later, the Bank of Canada announced its own rate reduction. The Bank of England followed suit this week.
The rate cuts (as well as the related stimulus measures by the ECB) were all justified. The lack of international co-ordination is troubling, however. Why not announce all the measures simultaneously, to reassure global markets that policy makers are working smoothly together to tame the virus’s impact?
The scattershot approach suggests countries around the world are struggling to agree on a unified response. That would surprise no one, given the disparate personalities in charge. Each is facing a different configuration of voters and a different set of budget realities.
But the virus is shifting political realities fast. Voters are nervous and nervous voters often want change.
Only a week ago, most numbers-driven forecasting models regarded Mr. Trump’s re-election as a near certainty. The logic was simple: U.S. presidents nearly always get re-elected when unemployment and inflation are low, as they are now.
This week, expectations flipped. PredictIt, an online market that lets participants bet on the outcome of future political events, indicates that Democrats are now favoured to win the presidential election in November – the first time since early January that Mr. Trump has not been regarded as the hands-down leader.
You can read the sudden shift in many ways. Maybe it’s nothing more than a manifestation of virus-induced anxiety. But maybe it’s also a sign that people are eager for more impressive, more active leadership. If so, the political repercussions from the virus outbreak are just beginning to be felt.