Governments Around the World Prioritize Saving Big Banks Over Stopping the Coronavirus
Last week, stock markets had some of their worst days since the Great Depression as volatility spiked. In response to this, governments around the world took swift and decisive action to aid big corporations and bailout banks. The Federal Reserve rolled out a series of new policies which will provide U.S. banks with $5.4 trillion in new funding. Trump announced that the federal government would purchase large quantities of crude oil to bailout U.S. oil producers hurt by low oil prices. The administration is also reportedly contemplating an $800 billion bailout for U.S. companies. Over the weekend, the Federal Reserve announced another bailout, promising to buy $700 billion in assets from U.S. banks, while also lowering interest rates to 0% and taking other measures to aid big banks. The Federal Reserve also announced increased currency swaps with the central banks in Japan, Switzerland, the U.K., and Europe in the face of a massive U.S. dollar funding shortfall that has emerged due the economic downturn and the virus.
All of this is part of a larger series of coordinated economic actions by governments around the world. In Germany the government announced a 550 billion bailout for German companies, while also promising that there was “no upper limit” should a bigger bailout be needed. Speaking on this topic, German Economy Minister Peter Altmaier said, “we will reload our weapons if necessary.” In contrast, Germany has only allocated €1 billion to fight Coronavirus. The Bank of Japan (the Japanese Central Bank), also engaged in unprecedented action, buying 101.4 billion yen ($939 million) in stock funds on Thursday. This was the largest outright purchase of stock funds ever by the Bank of Japan. What’s more, economists largely agree that the Bank of Japan will significantly increase its stock buying program next week.
Christine Lagarde, the current President of the European Central Bank and former Managing Director of the International Monetary Fund, called on European countries to take “an ambitious and coordinated fiscal stance” to combat the “weakened [economic] outlook” from the virus. While governments around the world have coordinated their financial bailouts of the big banks and multinational companies, the governments of the world have done little to coordinate their response to the virus. For example, in a recent televised address, Trump referred to the Coronavirus as a “foreign virus” and announced a travel ban on Europe. In his speech Trump tried to deflect criticism of his administration’s negligence in responding to Coronavirus, by blaming European leaders for the virus’ spread in the U.S. His argument was that they were not quick enough to ban travel from China, and therefore European travelers seeded the U.S. with the virus. In response to the ban, Gérard Araud, French Ambassador to the U.S., tweeted:
Trump needed a narrative to exonerate his administration from any responsibility in the crisis. The foreigner is always a good scapegoat. The Chinese has already been used. So, let’s take the European, not any European, the EU-one. Doesn’t make sense but ideologically healthy.— Gérard Araud (@GerardAraud) March 12, 2020
This blame-game is not isolated to the Trump administration. While politicians and officials in the EU like Christine Lagarde have called for unprecedented fiscal coordination in the EU, they have been unwilling to provide material and medical aid to other EU countries impact by the Coronavirus. For example, when Italy’s medical system first began to struggle with Coronavirus patients, the country requested assistance from the Union Civil Protection Mechanism, an EU Civil Protection Mechanism which has a mission to “improve prevention, preparedness and response to disasters.” Not a single EU country sent Italy any medical supplies or assistance.
This in part reflects how unprepared other European countries are for this pandemic. However, it also shows deeper lack of coordination between them in this time of crisis. This includes not only the lack of sharing of medical supplies, but also the uncoordinated nature of efforts to contain the spread of the virus. Countries increasingly seek to blame each other for mishandling the Coronavirus, and this is not limited to the Trump administration. For instance, the European Union just put a 30-day ban on non-essential travel. While the central banks and governments of the world are coordinating a major financial bailout of the big banks and multinational companies, these same governments are also increasingly at odd with each other over how to respond to the virus.
This is not confined to Western countries. For example, Chinese state officials recently have been spreading conspiracy theories that the US army brought the virus to Wuhan. This is not an isolated incident, and Chinese state media has increasingly been pushing this narrative1. This reflects the interests of the Chinese state to use this crisis to its geopolitical advantage. In fact, the pandemic has also become a site of geopolitical competition between the U.S. and China. After initially praising Xi Jinping’s response, Trump has repeatedly blamed China for the Coronavirus. This is the logical result of years of sharpening competition between the U.S. and China.
Even one of the few examples of international aid by governments seems to be part of this logic of crude geopolitical calculus. Recently, China sent medical experts and medical supplies to Italy to aid in the fight against Coronavirus. In a related initiative, eastern Zhejiang province in China donated masks to help overseas Chinese in Italy. While framed by the Chinese state as a benevolent effort to help Italy and overseas Chinese there, the reality is that this part of China’s larger geopolitical strategy. In March 2019, Italy joined China’s Belt and Road Initiative. The Belt and Road Initiative is a major aspect of China’s efforts to overtake the U.S. as the leading global superpower. The right-wing in the U.S. is acutely aware China’s maneuvers globally during this pandemic.
But despite their discomfort, as the Trump administration continues to mismanage the domestic, public health, and geopolitical aspects of this pandemic, it is likely that relatively basic maneuvers by China at this time will continue to boost its geopolitical strength and influence relative to the United States.