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February 24, 2020

Coronavirus comes to Europe

The non-trivial lessons we have learnt from the coronavirus outbreak includes the following: extreme lockdown measures, such as those in China and now in Italy, are successful in containing the disease. Despite the latest cases, the global spread of the disease has been less than feared initially. Most of the victims abroad either had direct contact with people who contracted the disease in China, or live in local clusters of the disease.

We learn from the South China Morning Post this morning that Guangdong, the southern Chinese province just north of Hong Kong and the second worst hit, has now reduced the health alert level to grade two. Except for the Hubei region, it appears that the spread of the disease is slowing. 

In Italy, a dozen towns in the Lombardy and Veneto regions, in the north and north-east of the country, have been put under quarantine. Milan, the capital of Lombardy, has closed down schools. Italian media report that travel in and out of Milan has nearly collapsed. Restaurants are empty. It is quite a sight to see Giorgio Armani wearing a face mask.

There are about 150 confirmed cases, but we expect the number to rise. Judging by the experience in China, we are relatively optimistic that the severe lockdown measures would contain the spread of the disease within Italy and to neighbouring countries. Austria has already stopped an Italian train at the border. The trade-off will be a bigger immediate economic hit, as has happened in China. Lombardy is one of the EU’s most central and most connected regions, in close proximity to both Austria and Switzerland. If the disease spreads from the north  of Italy to the north-west, we could see a lockdown of the French-Italian border too, which would have a disproportionately large economic impact.

The crisis hits one of the eurozone’s weakest economies near the bottom of its economic cycle. It will have a fiscal impact, details of which will become apparent soon. While EU fiscal rules allow room for manoeuvre in emergencies, Italy’s public finances are already stretched to their limits. We expect the crisis to constitute a medium-to-strong shock for the Italian economy, while the impact on the rest of the EU will be indirect, through European and global network effects.

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February 24, 2020

Municipal elections - a precursor for Le Pen?

In less than a month the French will hold their municipal elections. A lot of media attention has been on the race in Paris, where three women are competing for the job as mayor. After a sex scandal forced the original En Marche candidate out of the race, it is now up to Agnes Buzyn, who left the ministry of solidarity and health to save the day for Macron in Paris. She chose to run on the same current as her conservative competitor Rachida Dati. Both oppose the incumbent Anne Hildago on her battle against cars in the capital. Environment tops the agenda in many towns and cities, but not so in Paris even if pollution is high there. 

Going anti-green, however, Buzyn risks running counter to Macron's plan to change the page and move on from the pension reform to an environment agenda, writes Cécile Cornudet. 

Another mayoral race to watch out for is in Perpignan, the crime- and poverty-stricken city close to the Spanish boarder. Louis Alliot, Marine Le Pen's former partner, is running in this race. He won the first round last time in 2014, but he failed to secure a win in the second as the Socialist candidate backed the conservative in a joint effort against the Front National. Will it be different this time? The FT notes that Alliot tuned down his anti-immigrant rhetoric, focusing on law and order instead. Alliot hopes that with both left and right weakened and an unpopular Macron there will be less resistance and a greater chance for him to succeed this time. 

Marine Le Pen also makes no secret that she is expecting her Rassemblement National to make big gains in these municipal elections by riding on the anti-Macron mood. In 2014 the Front National won 12 mayor races and, due to their high scores in the first round, established themselves in local councils throughout the country. The municipal elections will be a barometer for whether there is a tide towards RN, and will sets the stage for the presidential elections in 2022.

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February 24, 2020

Germany and France get involved over Idlib

Europe is getting involved over the humanitarian catastrophe in Syria's Idlib, at least a bit. France and Germany will be holding talks with Russia and Turkey on March 5. Berlin said the aim is to find a political solution, a German holding pattern which is yet to proof its effectiveness. The situation in Idlib continues to be precarious, as Assad's forces still target civilians.

Russia and Turkey were trading threats last week after Russian-backed forces caused the death of 17 Turkish soldiers. Russia blocked a UN-backed call for a ceasefire on Wednesday. In a tumultuous meeting behind closed doors the US and Europe backed Turkey. Turkey threatened military action unless Assad halts the offensive by the end of this month.

Neither Turkey nor Russia may have an interest in an escalation for economic and political reasons. But a truce might be evasive as Assad tries to recapture lost territory. It will be up to Russia to put an end to this and stop a new wave of refugees. This will not be done without extracting a price.

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