Counting the Cost

Hit hard by the coronavirus pandemic, will Italy need a bailout?

Huge debts, anaemic growth and COVID-19 have brought Italy’s economy to a standstill. Plus, airlines call for bailouts.

The world’s eighth biggest economy and its 60 million citizens are under lockdown. Italy became the first European nation to introduce drastic measures controlling the spread of COVID-19.

Italy has recorded more deaths from the new coronavirus than China, the origin of the outbreak. 

In addition to school closures and shuttered shops, businesses are winding down nonessential work and transport hubs are grounding to a halt.

The Italian government has pledged $28bn to ease the burden of the pandemic. That includes helping companies, homeowners with mortgage payments, and people facing unemployment. 

Italy really needs all the support it can get right now as it has never really recovered from Europe’s debt crisis. Its debt stands close to 135 percent of gross domestic product (GDP) and growth since the introduction of the euro, almost 20 years ago, has barely grown. 

Such is the dire state of its economy. Recession is looming and there have been warnings that it may need to seek a bailout from the eurozone and even the IMF.

Lorenzo Codogno, the chief economist at LC Macro Advisors, tells Al Jazeera the impact of the coronavirus pandemic on the Italian economy may be “sizable”, with a contraction rate of 5 percent or more in the current year.

“This is on the assumption that by June, most of the economic impact is over,” Codogno adds.

Airlines seek bailouts

Most airlines could be bankrupt by the end of May and many could technically be bankrupt already, according to a Sydney-based consultancy. 

This is the warning from Australia’s Centre for Aviation, as governments impose travel bans due to the fast spreading coronavirus. 

Well before the imposition of travel bans, airlines were expected to lose $113bn in revenue this year. That has pushed many airlines to seek government support. In the United States, airlines have asked for a $50bn bailout.

But critics argue the airlines have mismanaged their finances, choosing to spend their cash on buying back shares to enrich shareholders. By doing this, there is less stock in the market, thereby pushing up prices. According to Bloomberg, US airlines have used about 96 percent of their cash on stock buy-backs.

Updesh Kapur, an aviation consultant, says: “What’s happening in the industry is so unprecedented in the last few weeks.” 

He adds: “This is the worst crisis since the 2008 financial crisis, the SARS outbreak, and 9/11, of course. If you combine all three of those incidents, we are seeing the worst crisis in the aviation industry and inevitably we are going to see some heavy losses across the industry.”