FT : EU ‘frugal 4’ push back on Franco-German virus recovery plan

EU ‘frugal 4’ push back on Franco-German virus recovery plan
Austria, Denmark, the Netherlands and Sweden want loans from a time-limited fund rather than grants

The debate over the EU’s post-Covid-19 recovery fund became more fractious over the weekend after four northern European member states opposed a landmark Franco-German plan to offer grants to hard-pressed countries.

Austria, Denmark, the Netherlands and Sweden said they would support the creation of a one-off emergency fund but that they would not accept any measures that would lead to debt mutualisation or “significant increases” in the EU’s upcoming seven-year budget. 

The paper from the so-called “frugal four” clashes with proposals from Germany and France, which on Monday outlined a plan for a €500bn recovery fund that would involve cash injections in the form of grants rather than loans. 

The move by French president Emmanuel Macron and German chancellor Angela Merkel triggered positive reactions from southern European countries, and was hailed as a breakthrough in overcoming longstanding Franco-German differences over the need for more risk-sharing in the eurozone. 

The split will complicate the European Commission’s efforts in the coming days to table its own detailed plans for the recovery fund and upcoming multiannual financial framework (MFF), which runs from 2021 to 2027. All 27 member states will need to be on board before any recovery fund plan sees the light of day. 

In a further sign of the policy shift in Germany regarding debt mutualisation, Wolfgang Schäuble, one of the country’s most prominent fiscal hawks during the eurozone debt crisis of 2010 to 2015, expressed his support for the Franco-German plan and dismissed the frugal four’s arguments.

The former German finance minister, who has been president of the Bundestag since 2017, told German newspaper Welt am Sonntag that non-refundable grants rather than loans were necessary to deal with an “economic slump that we have not experienced in our lifetime”.

“If Europe wants to have any chance at all, it must now show solidarity and prove that it is capable to act,” Mr Schäuble said on Sunday. “Germans have an overarching self-interest that Europe gets back on its feet.”

“Additional loans to the member states would have been stones instead of bread, because several [member states] are already heavily indebted,” Mr Schäuble said. Noting that the recovery fund did not mutualise existing debt, he said: “Instead, the EU commission will drive the economic reconstruction of Europe.”

In Madrid, a senior officer in the administration of Spanish prime minister Pedro Sánchez involved in the EU negotiations told the Financial Times on Sunday that Spain would not accept a loan-based recovery fund because it would over-indebt countries such as Spain and Italy. Such a fund also had conditions attached that suggested the Covid-19 pandemic was a localised moral hazard problem and not an unprecedented global crisis. 

In their paper, the frugal nations say they are opposed to the idea that the EU could borrow money and hand it out as non-refundable transfers to hard-hit states. They would be willing to support lending on “favourable terms” to member states in need, while limiting the risk and providing “sound incentives”, they write.

They would support a “temporary, one-off emergency fund” to support the recovery and health sectors with a sunset clause of two years. 

“On top of a modernised MFF, we propose to create an Emergency Recovery Fund based on a ‘loans for loans’ approach, which is in line with fundamental principles for the EU budget,” the frugal four’s paper said, without putting forward any figures.

They said support for coronavirus-related spending could be found by seeking savings elsewhere. It would involve “front-loading” or temporarily topping up coronavirus-related expenditure to kick-start the recovery.

The frugal four also insisted recipients of recovery funding would have to display a “strong commitment to reforms and the fiscal framework” in the hope this would help promote potential growth.

The countries warned that given the depth of the economic contraction, all member states would have to devote a larger share of their national resources to the EU budget. “Additional funds for the EU, regardless of how they are financed, will strain national budgets even further,” they said.

Once commission president Ursula von der Leyen presents her own plans, Charles Michel, European Council president, is expected to oversee the negotiations. 

Among the key questions that will need to be resolved are the level of the MFF, the fate of budget rebates received by frugal states, as well as the size of the recovery fund and the balance between grants and loans.

FT : Richest nations face $17tn government debt burden from coronavirus

Richest nations face $17tn government debt burden from coronavirus
Fall in tax revenues set to push average debt-to-GDP ratio to 137%, warns OECD

Rich countries are set to take on at least $17tn of extra public debt as they battle the economic consequences of the pandemic, according to the OECD, as sharp drops in tax revenues are expected to dwarf the stimulus measures put in place to battle the disease. 

Across the OECD club of rich countries, average government financial liabilities are expected to rise from 109 per cent of gross domestic product to more than 137 per cent this year, leaving many with public debt burdens similar to the current level in Italy.

Additional debt of that scale would amount to a minimum of $13,000 per person across the 1.3bn people that live in OECD member countries. Debt levels could rise even further if the economic recovery from the pandemic is slower than many economists hope. 

Randall Kroszner, of the Chicago Booth School of Business and a former Federal Reserve governor, said the situation raised questions about the long-term sustainability of high levels of public and private debt.

“We have to face the hard reality we’re not going to have a V-shaped recovery,” he said.


The OECD said that public debt among its members rose by 28 percentage points of GDP in the financial crisis of 2008-09, totalling $17tn. “For 2020, the economic impact of the Covid-19 pandemic is expected to be worse than the great financial crisis,” it said.

Although many governments have introduced additional fiscal measures this year ranging from 1 per cent of GDP in France and Spain to 6 per cent in the US, they are likely to be outpaced by the rise in public debt because tax revenues tend to fall even faster than economic activity in a deep recession, according to the OECD.

A decade ago, fashionable economic thinking suggested that beyond 90 per cent of GDP, government debt levels became unsustainable. Although most economists do not now believe there is such a clear limit, many still believe that allowing public debt to build up ever higher would threaten to undermine private sector spending, creating a drag on growth. 

Rising debt levels will become a problem in future, Angel Gurría, OECD secretary-general, has warned, although he said that countries should not worry about their fiscal positions now in the middle of the crisis.

“We are going to be heavy on the wing because we are trying to fly and we were already carrying a lot of debt and now we are adding more,” he said.


As a result, many more countries are set to face a similar economic environment to that experienced by Japan since its financial bubble burst in the early 1990s. Concern about government debt and deficits has been a defining feature of Japan’s political economy ever since, with debt eventually stabilising at about 240 per cent of GDP under current prime minister Shinzo Abe.

Many politicians and business leaders are alarmed by the fresh spending packages to tackle the pandemic in Japan.

“Our economic strategy is using a considerable amount of money, and honestly speaking it’s going to be a big fiscal problem in the future,” said Hiroaki Nakanishi, executive chairman of Hitachi and head of the Keidanren business lobby, in a recent interview with the Financial Times. “I have no good plan. Until the economy is properly back on its feet, I don’t think there is any sensible answer.”

Central banks’ purchases of government debt can help to lighten the load by ensuring the private sector does not have to soak up public assets to finance government budget deficits and helping to keep interest costs low. Bond yields fall as prices rise.

Advanced economies already benefit from extremely low interest costs on their borrowing as central banks have stepped up programmes to purchase assets in huge quantities in an attempt to keep inflation from falling far below their targets, and bond yields have fallen further in recent weeks. 

The UK raised debt at negative yields for the first time this week, joining other countries including Germany and France, whose bond yields are also in negative territory.

But, writing in the FT recently, Willem Buiter, a visiting professor at Colombia University, said there were limits to the deficits governments could run while being financed by central banks without resulting in inflation.

Governments could tackle debt by raising taxes or cutting public spending, but few want to go down that route after almost a decade of tightening public spending. And economists warn the negative consequences for growth could easily outweigh the benefits. 

Again, there are lessons from Japan. Although Mr Abe is known for economic stimulus, his term has involved two large rises in consumption tax, from 5 per cent to 8 per cent in 2014 and then to 10 per cent in October last year. In both cases, the tax increase drove the economy into recession.

Adam Posen, head of the Peterson Institute for International Economics, told UK parliamentarians this week that it was vital to avoid such actions. “The most important thing is to get the economy so that it is growing faster than the debt is growing,” he said. 

With no simple way out for advanced economies facing very high levels of public and private debt, Prof Kroszner said the best policy was the “delicate” art of debt forgiveness and restructuring. Done properly, it could also be in the interests of debt holders who would still lose, but not as much as they would if they clung on to the hope that the debts would ultimately be repaid, he said.

FT : China warns audit plans will drive companies from US exchanges

China warns audit plans will drive companies from US exchanges
Beijing says Senate proposals are aimed at its groups and would politicise securities regulation

China’s securities regulator has hit back at a proposal by Washington that could effectively force companies from the country to delist from US stock exchanges, saying such a move would “weaken confidence” in American markets.

The US Senate last week unanimously passed a bill that would force companies to delist from US stock exchanges if they do not comply with US regulatory audits, something many Chinese companies are unwilling or unable to do.

On Sunday, China’s securities regulator issued an unusually stern response, saying the proposal “was directly targeted at China”, and “politicises securities regulation”.

The bill would “weaken the confidence of global investors in US capital markets, and their global position,” said the China Securities Regulatory Commission.

“We believe that global investors will make their own wise choices, according to what benefits them the most,” the CSRC added.

Although the US and China have agreed a pause to the escalation of trade tariffs, tensions between the two powers have been escalating on other fronts, including Beijing’s move to impose a new national security law on Hong Kong.

On Sunday, thousands of demonstrators took to the streets of the city centre in the former British colony to protest against the move, leading police to fire tear gas and water cannons.

Mike Pompeo, US secretary of state, last week described the law as a “death knell” for autonomy in the financial hub and warned it would “impact” Washington’s decision on whether to extend the special trading status currently afforded to the territory.

The US recently tightened its sanctions on Huawei, leaving the China’s telecoms company to warn its survival was at stake, while earlier this month, president Donald Trump ordered the main federal government pension fund not to invest in Chinese stocks.

Wang Yi, China’s foreign minister, said on Sunday that political forces in the US were trying to push the two countries into a “so-called new cold war”.

The US-China dispute over securities regulation comes after the collapse of Luckin Coffee, a New-York-listed coffee chain that had admitted to fabricating over $310m of its sales. The revelation led to share prices plummeting for a number of other Chinese companies that had recently listed in New York.

Baidu, China’s dominant search engine with a market capitalisation of around $35bn, said last week it was reconsidering its Nasdaq listing in light of the Senate bill. Baidu’s chief executive said the company was mulling a secondary listing in Hong Kong.

Chinese tech companies have long tapped US stock markets. At home, they face capital controls that limit their access to dollars, and more stringent listing requirements. Chinese regulators have tried to get start-ups to list at home on Shanghai’s new “Star” board, which has not proved as lively as hoped.

The Public Company Accounting Oversight Board, the US accounting body, has long complained of having access blocked to the accounts of companies registered in China and Hong Kong by the local authorities.

The US bill, which is yet to be passed by the House of Representatives, means companies would be delisted if they do not comply with audits by the PCAOB for three consecutive years. Foreign companies would also be required to disclose whether they are owned or controlled by a government.

“This bill completely ignores the longstanding co-operation between the US and China’s regulatory agencies on strengthening oversight and audits,” the CSRC said on Sunday, citing recent exchanges with the PCAOB.

But, the PCAOB wrote in a statement several months ago, “Chinese co-operation has not been sufficient for the PCAOB to obtain timely access to relevant documents and testimony necessary to carry out our mission, nor have consultations . . . resulted in improvements.”

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Small businesses will be key to any recovery, but they face numerous pandemic-related challenges; The tech sector is optimistic about several upcoming IPOs

* Cover story: The coronavirus is affecting businesses of all sizes, but small companies—often with limited cash cushions and less access to credit than larger firms—are under the greatest assault; Small businesses are responsible for about half of US employment, half of gross domestic product, and 40% of total business revenue, and are key to the recovery, but investors seem to have largely discounted the threat their struggles pose for the broader economy.

* Tech Trader: Tech investors are growing increasingly optimistic, and though there have been few initial public offerings since the beginning of the year, new entrants—including subscription-based database company Zoominfo, online used-car dealership Vroom, construction management software maker Procore Technologies, payment processing startup Shift4 Payments, and Warner Music Group—are generating excitement.

* Trader: “What makes today different than the market’s all-time peak on February 19 is that the risks are now known—only the outcomes are unclear,” given the likelihood of a second wave of Covid-19 in the fall, a deep recession along the lines of the Great Depression, and growing tensions between the US and China, which are set to be a permanent part of the landscape; Market breadth—a gauge that looks at how many stocks are driving the market higher—is good for investors, the stock market, and the economy when it is wide, but today’s narrow breadth still presents opportunities for investors looking ahead to the second half of 2020.

* Interviews: Suzanne Clark, president of the US Chamber of Commerce, talks about the challenges that businesses are facing, what they need to get back on their feet, and the concerns businesses of all sizes continue to raise—and calls for the government to decide which five or six metrics are most important for reopening; Ben Inker, head of GMO’s asset allocation team, says that the recent rally in US stocks has more-than fully priced in an optimistic resolution to the coronavirus crisis, leaving investors in a dangerous position if something goes wrong—such that he has reduced the $60B firm’s stock allocation.

* Profile: Brian Yacktman and Elliott Savage, co-managers of the YCG Enhanced fund, look for quality businesses with high returns on tangible assets, but investment decisions hinge on whether companies have enduring pricing power in industries that are growing at least as fast as gross domestic product (top 10 holdings: MSCI, CBRE, MCO, MA, SCHW, GOOGL, WFC, BAC, MMC, AON).

* Features: 1) Positive on WMT, HD, LOW, TGT: Large, well-capitalized chains with big e-commerce units are growing rapidly, while smaller retailers such as URBN and KSS are struggling to remain relevant during the pandemic, a shift of balance in the sector that is likely to grow more pronounced; 2) + DBX: The company, an early cloud player that served as a blueprint for storage services from GOOGL, AAPL, and MSFT, is increasingly coming to the foreground and is benefiting from the fact that more people are staying at home and working remotely; shares, which remain below all-time highs, offer an opportunity to benefit from the trend; 3) “The convertible securities market has become an important source of rescue capital in the past two months for companies seeking to get through the current economic crisis,” with issuance this year totaling $44B, on pace to top the $53B sold last year; 4) The small-business sector might not seem like the ideal place to hunt for returns right now, but these companies—totaling more than 30M—are vital to the US economy and reeling from the coronavirus pandemic, and can pay off handsomely for investors looking to do some legwork; 5) The possibility that China could impose national-security laws on Hong Kong, limiting the city’s autonomy and ending its “one country, two systems” framework, creates a troubling scenario for investors, who may be forced to reassess China-focused investments—and there is clear risk ahead for companies trying to operate in the US and China, says Yale’s Stephen Roach; 6) Liquid alts—mutual funds or exchange-traded funds that mimic the investment strategies of hedge funds—were supposed to provide diversification and protection during crises, but instead losses have piled up during the coronavirus pandemic, though experts say demand for the products should nonetheless continue to rise; 7) “A violent selloff and equally rapid ascent in the stock market has caused mispricings and created massive disparities among sectors and stocks, giving actively managed mutual funds an opportunity to beat the index’s return, after lagging behind badly throughout the long bull market”; 8) Next month the FTSE Russell will rebalance its US equity indexes, but the pandemic is likely to shake up the tradition—this year’s reshuffle will feature particularly high turnover and changes in index weights because it follows a steep selloff and a rapid-but-uneven bounce off the market bottom.

* European Trader: Cautious on Adecco Group: The company, which generates most of its sales form providing temporary works to clients, has seen business drop off and shares fall amid the coronavirus pandemic, but the discounted stock is worth a gamble for investors betting on an economic recovery.

* Emerging Markets: Rumors of a corporate credit crisis in China are proving greatly exaggerated, at least for global bond investors—yields for many issuers have compressed by half since the panicky days of March, but current returns in the upper single digits may still be worth the risk.

* Commodities: Gold prices could reach a record by the end of the year, but investors shouldn’t expect to see a smooth ride to the top, even as measures to offset the pandemic-hit economy support the precious metal’s appeal as a haven.

* Streetwise: “A wave of retail earnings this past week seemed likely to highlight the very fragile state of the consumer,” says columnist Alex Eules. “Instead, we got a different message: E-commerce might just be saving the economy.”

FT : The UK must defend companies against overseas takeovers

The UK must defend companies against overseas takeovers
Covid-19 recession will stoke appetite of state-owned enterprises with deep pockets

The writer is a Conservative MP and chairs the House of Commons foreign affairs committee

For decades the UK has prided itself on being an open economy with few restrictions on foreign ownership. Without the threat of active government interference, investors have been confident their rights will stand and they can easily sell. Openness attracted capital from around the world, helping Britain prosper.

That model was based on the expectation that inbound funds would generally come from private-sector actors in economies broadly similar to our own, with similar rules and standards. The rise in state capitalism with deep pockets has changed that equilibrium.

Increasingly, China’s state-owned enterprises have been able to draw on state banks to outbid rivals in Europe and America. In a downturn, the difference between state-backed credit and the buying power of normal commercial investors will become starker, further strengthening the hand of state-owned enterprises with a voracious appetite to buy rather than build.

Unsurprisingly, some democratic market economies have begun to defend their interests, subjecting potential sales of significant companies and assets to stricter scrutiny. Britain should learn from them.

In March, anticipating the possibility of distressed sales during a downturn, Australia’s Treasurer lowered the threshold for referring takeovers to the Foreign Investment Review Board from A$1.1bn to zero. In April, France — which once declared yoghurt producer Danone a strategic asset — expanded the sectors where deals are subject to prior clearance from the government to include media, agriculture, quantum technologies, energy storage and biotechnology.

Even the EU competition chief, a champion of rules limiting state aid, has recommended members buy strategic stakes in vulnerable companies. Madrid, Berlin and Rome have all increased their powers to veto foreign takeovers and liberal Sweden is now talking about tightening the rules to prevent hard hit companies falling prey to foreign investors looking to gain access to cutting-edge technology or firms linked to crucial infrastructure.

So, it is welcome that UK prime minister Boris Johnson announced an imminent change to the UK’s rules at prime minister’s questions last week.

We cannot delay. Chancellor Rishi Sunak warns of a “recession the likes of which we have not seen”, which will see some businesses go under and others put up for sale. An inferno of fire sales is risky: if we are not careful, much of the intellectual property the UK needs for long-term innovation and prosperity could disappear to Shanghai or Shenzhen.

The Treasury recognises the danger: some will be mitigated through the Future Fund, which provides matched funding to high-growth start-ups. But supporting new businesses is only part of the solution. If we want to protect those investments, and our existing intellectual property, then we need to stop our best assets being stripped away.

Britain needs to bring its laws on foreign ownership in line with partners. The Committee on Foreign Investment in the United States provides one model that gives the government discretion and dissuades many inappropriate buyers before a veto is required.

Cfius blocked the take over of a US semiconductor group by the same Chinese-backed investment company — Canyon Bridge — that was allowed to buy the UK’s Imagination Technologies. The Chinese group then attempted to fill the company’s board with directors from a Chinese government investment fund, prompting fears that valuable patents will soon move east.

The UK approach must go beyond areas of national security such as military, dual-use, computing hardware and quantum technology sectors already covered by a change in the law two years ago. The current £1m turnover threshold to trigger an inquiry will look huge to many firms after lockdown. Now, with a Covid-induced recession and wolf warriors in China’s embassies and boardrooms, we can’t wait.

This is no longer about traditional security but ensuring the continued operation of open markets. Unlike its Soviet predecessors, Beijing has both the financial muscle and intent to execute an aggressive Made in China strategy across sectors ranging from green energy and medicines, to agriculture and aerospace.

For Britain there’s an added pressure. New European investment screening regulations will protect the EU27 from October just when we’re looking to strike new trade deals.

We need a new approach on international investment entrenched before we do those new deals. Every partner will be looking through our laws to see what limitations are already in place on inward investment. If we try to legislate for extra levels of control later, they could fall foul of non-regression clauses, trigger penalties or reopen lengthy negotiations.

We need to be clear on foreign ownership, now. We can be an open market for exchange, a broker to the world, and still protect the crown jewels of our knowledge economy. But time to do all three is running out.

NYT : The Artisans Behind Italian Fashion Tremble at Their Future

Earth's Magnetic Field Mysteriously Weakening In Specific Locations, Throwing Off Satellites And Spacecraft

The Earth's magnetic field, which protects life on our planet by blocking the majority of harmful solar radiation, is mysteriously weakening in specific locations.
Over the last two centuries, it has lost nearly 10% of its strength, leading some to speculate that a multi-century pole reversal has begun. What's more, scientists have identified a large, localized region of weakness extending from Africa to South America, along with a second 'center of minimum intensity' southwest of Africa - both of which are allowing charged particles from the cosmos to penetrate lower altitudes of the atmosphere - throwing off satellites flying in low-Earth orbit, according to Sky.
Known as the South Atlantic Anomaly, the field strength in this area has rapidly shrunk over the past 50 years just as the area itself has grown and moved westward.
Over the past five years a second centre of minimum intensity has developed southwest of Africa, which researchers believe indicates the anomaly could split into two separate cells. -Sky

According to scientists from the Swarm Data Innovation and Science Cluster (DISC) at the European Space Agency (ESA), measurements from their 'swarm satellite constellation' have shed tremendous light on the second anomaly.
In fact, the anomaly had puzzled ESA researchers as their Swarm satellites would sometimes 'black out' when flying through the affected region. Three years ago, they observed a link between the blackouts and Ionospheric thunderstorms.
"The new, eastern minimum of the South Atlantic Anomaly has appeared over the last decade and in recent years is developing vigorously," said Dr. Jurgen Matzka of the German Research Center for Geosciences. "We are very lucky to have the Swarm satellites in orbit to investigate the development of the South Atlantic Anomaly. The challenge now is to understand the processes in Earth's core driving these changes."
If this is the beginning of a pole reversal - which happens roughly every quarter-million years, it would result in multiple north and south magnetic poles all around the globe during the multi-century phenomenon.
"Such events have occurred many times throughout the planet's history," said ESA, adding "we are long overdue by the average rate at which these reversals take place (roughly every 250,000 years)"

Not to worry, in theory, as the space agency says that the South Atlantic dip which they're still learning about was "well within what is considered normal levels of fluctuations."
For people on the surface the anomaly is unlikely to cause any alarm, but satellites and other spacecraft flying through the area are experiencing technical malfunctions.
Because the magnetic field is weaker in the region, charged particles from the cosmos can penetrate through to the altitudes that low-Earth orbiting satellites fly at.
"The mystery of the origin of the South Atlantic Anomaly has yet to be solved," added ESA. -Sky
"However, one thing is certain: magnetic field observations from Swarm are providing exciting new insights into the scarcely understood processes of Earth's interior."

NYT : The Artisans Behind Italian Fashion Tremble at Their Future

The Artisans Behind Italian Fashion Tremble at Their Future
The industry has returned to work, but it’s far from business as usual for small suppliers to luxury brands and retailers.

Until recently, some of most intricately embroidered fabrics in the world, like those found in garments designed by Giorgio Armani, Valentino, Etro and Prada, have come out of a duplex apartment complex in Milan, the home of a small business called Pino Grasso Ricami.

Under the watchful eye of Mr. Grasso and his daughter, Raffaella Grasso, several designers and 10 seamstresses created lavish fabrics emblazoned with impossibly detailed crochet stitching, beading and lace.

That came to a crashing halt at the end of February as the coronavirus took hold in Italy. “One by one, the brands all closed their doors. The phone stopped ringing,” Ms. Grasso said. “Suddenly, everything stopped.”

Almost three months later, the lockdown has started to ease, and the skilled seamstresses with decades of experience in their hands have returned. But so far, the work hasn’t. Orders from clients are down 80 percent.

“Nobody wants to spend money right now,” Ms. Grasso said. “Especially because we are expensive relative to rivals in countries like India. We will fight, of course, but it is going to be a struggle for businesses like ours to survive.”

Italy’s 165 billion euro ($180 billion) fashion industry is known to the world for its glamorous brands, but it is built on a vast and tightly woven network of designers, manufacturers, distributors and retailers, large and small, that help make up the backbone of Europe’s fourth-largest economy. For these companies, for this style of doing business, the future has never looked more uncertain.

roduction of fashion collections have been either delayed or scrapped by large global fashion retailers and luxury brands. With the July couture shows in Paris canceled, and a cloud of uncertainty hanging over the fashion weeks in September, many specialist workshops like Pino Grasso remain in limbo.

Italy’s fashion manufacturing sector is expected to contract by up to 40 percent this year, said Claudia D’Arpizio, a partner at the consulting firm Bain & Company.

“It is a very worrying situation,” she said, adding that beyond luxury artisans was a vast ecosystem of export-orientated factories producing everything from metal hardware for accessories to rubber footwear soles.

“The big brands are enduring tough times but generally have some liquidity and a strong consumer profile,” Ms. D’Arpizio added. “However, they all have networks of small suppliers scattered all over Italy. Those are the businesses more likely to disappear.”

More than 40 percent of global luxury goods production takes place in Italy, according to the consulting firm McKinsey, with the “Made in Italy” label a source of passionate national pride (despite controversies in recent years).

But while the government has pledged €740 billion in loans, grants or payroll support to keep the national economy afloat, many small-business owners say red tape is holding up the assistance.

In the fashion sector, this has increased pressure on larger companies to offer support for smaller suppliers. The big brands, though, say they must also manage their own operations amid plummeting sales.

“This has been one of the toughest periods in our company’s history,” said the chief executive of Prada, Patrizio Bertelli. The company had to close most of its stores worldwide, and has begun to reopen manufacturing sites, some of which were used to make personal protective equipment.

Salvatore Ferragamo, which financed the refurbishment of two hospital wards in Florence and donated 50,000 units of hand sanitizer, shut down its global store network, and a 30 percent slump in sales in the first quarter prompted lease renegotiations with its landlords.

Ferragamo’s chief executive, Micaela Le Divelec Lemmi, said the company must find a way to phase in the fall collections to stores while dealing with high levels of unsold 2020 inventory — and support its suppliers by making prompt payments and restoring production as quickly as possible. It is, she said, a constant balancing act.

Ms. D’Arpizio of Bain said she expected a flurry of acquisitions by brands to help suppliers in distress, possibly saving jobs in a struggling communities and even strengthening the national luxury sector for the longer term.

But for now, these smaller companies have had to make heavy investments to meet government-mandated protections as workers return to their stations.

Bonotto, for example, makes two million meters of fabric per year for clients such as Chanel, Gucci and Louis Vuitton. When the 200 workers returned two weeks ago to the factory, near Vicenza, the space had been fully sanitized, with masks and gloves for workers, staggered entrance and exit times, and strict social distancing measures.

“We want to get back stronger than ever, despite the fact we have received many cancellations for orders in recent weeks,” said Giovanni Bonotto, the creative director.

Other firms voiced similar concerns.

Sara Giusti, one of three sisters who run AGL, a women’s footwear brand that the family has owned for three generations, said the company had been relatively lucky: Most of its spring and summer orders had been shipped to retailers before the shutdown. The factory, in the hills of Marche overlooking the Adriatic, now has a health-monitoring system that’s like “another world,” Ms. Giusti said.

But between honoring orders made with suppliers, investing in the safety of AGL’s 110 employees and dealing with the cancellation of orders for fall collections, business is tough.

“In companies like ours, your workers are like family — some of them have known you since you were knee high — so you want to do everything in your power to protect them,” Ms. Giusti said. “But my greatest fear is if there was a second wave of infections and we had to completely close once more.”

“We managed to reopen this time,” she added. “I don’t know if we could do it again.”

Italy’s fashion retailers, too, are slowly reopening after a brutal spring season, when sales fell as much as 70 percent, according to McKinsey.

With tourist travel likely to be decimated this summer, and many locals tightening their purse strings, many shops could be forced to offer steep discounts or close for good.

Carla Sozzani, founder of the famed Milanese store 10 Corso Como, has spent weeks reconfiguring its layout (which includes a restaurant) to accommodate social distancing, and negotiating with the brands she stocked “on a case-by-case basis.”

One silver lining was that Italy’s starting date for summer sales has been postponed about a month, to Aug. 1, so retailers can try to recoup the two months of earnings that the lockdown cost them.

Still, Ms. Sozzani was unsure what to expect when shoppers return.

“I don’t know if people will just run out and buy three jackets or dresses anymore after being in lockdown for so long,” she said. “I think many people feel quite traumatized, and their priorities might have changed.”

Longer term, Ms. Sozzani added, there needs to be a re-evaluation of the seasonality and cycles that had already driven the industry near a breaking point.

“There were too many trends, too many collections, too many fashion weeks,” she continued. “Perhaps this crisis will create a new consciousness, a focus on moderation and better quality.”

The Italian fashion industry was already reassessing its social and environmental footprint before the pandemic. But the crisis has accelerated a shift in the balance of power away from the midsize independent luxury brands on which Italy had built its reputation and toward French conglomerates like Kering and LVMH, which have better financial resources and more flexibility across global supply chains.

For Ms. Grasso and her family embroidery atelier in Milan, the situation remains precarious. Although she has received some state support, orders have only trickled in. Her team had even considered starting its own dressmaking service, though that would require yet more money that it just did not have.

“We are tentatively making new sketches and swatches, but we don’t know yet what fashion designers are planning for the seasons. Will they be bright and hopeful, or somber?” Ms. Grasso said. “We cannot predict the future. All we can do is hope and wait.”

NYT : How Upbeat Vaccine News Fueled a Stock Surge, and an Uproar

How Upbeat Vaccine News Fueled a Stock Surge, and an Uproar
The desperate hunt for treatments and vaccines has changed how researchers, regulators, drug companies like Moderna, investors and journalists do their jobs.

When the biotech company Moderna announced early on Monday morning positive results from a small, preliminary trial of its coronavirus vaccine, the company’s chief medical officer described the news as a “triumphant day for us.”

Moderna’s stock price jumped as much as 30 percent. Its announcement helped lift the stock market and was widely reported by news organizations, including The New York Times.

Nine hours after its initial news release — and after the markets closed — the company announced a stock offering with the aim of raising more than $1 billion to help bankroll vaccine development. That offering had not been mentioned in Moderna’s briefings of investors and journalists that morning, and the company chairman later said it was decided on only that afternoon.

By Tuesday, a backlash was underway. The company had not released any more data, so scientists could not evaluate its claim. The government agency leading the trial, the National Institute of Allergy and Infectious Diseases, had made no comment on the results. And the stock sale stirred concerns about whether the company had sought to jack up the price of its stock offering with the news.

The Moderna episode is a case study in how the coronavirus pandemic and the desperate hunt for treatments and vaccines are shaking up the financial markets and the way that researchers, regulators, drug companies, biotech investors and journalists do their jobs.

Drug companies accustomed to releasing early data to attract investors and satisfy regulators suddenly find themselves accused of revealing too much, or not enough, by a new, broader audience. Journalists may be scolded for hyping early findings, while those who ignore sketchy data may be blamed for missing the news.

Scientists who take the traditional time to gather and analyze their data for publication in mainstream journals are criticized for sitting on lifesaving information. Upstart websites beat the journals and break the usual rules by publishing unvetted studies, some of dubious quality. And President Trump uses his bully pulpit to promote unproven treatments.

“You have these wild swings, based on incomplete information,” said David Maris, managing director of Phalanx Investment Partners, and a longtime analyst covering the pharmaceutical industry. “It’s a crazy, speculative environment, because the pandemic has caused people to want to believe that there’s going to be a miracle cure in a miracle time frame.”

Moderna’s chairman, Noubar Afeyan, defended the decision to open a stock sale hours after releasing limited data. He said the company’s board had been considering an offering before Monday’s announcement, but finalized the decision only late in the day.

“It was based on our looking at the data and concluding that we needed to have our own resources going into develop this vaccine and not simply wait for government grants,” he said. Moderna has a deal to receive up to $483 million from the U.S. government to pursue a vaccine.

While corporations and scientists are under incredible pressure to develop a vaccine and raise money for research and manufacturing, vaccine companies are also vying for attention from investors amid a crowded field and are seeking to lift their stock prices in a global recession.

Nearly all are trying to compress the timetable for developing vaccines that normally takes years, sometimes decades, into a year or so — and still ensure that the vaccines will be safe and effective.

At the same time, a torrent of information is blasting from medical journals as well as company and university news releases. Articles are posted on so-called preprint websites of studies that have not been peer-reviewed by experts, unlike articles in mainstream medical and science journals. Clinicaltrials.gov, which lists medical studies, showed that 1,673 were underway for Covid-19, the disease caused by the coronavirus, as of May 23.

News outlets are rushing to stay on top of new findings, and to feed a public hungry for any advances in potential treatments or vaccine candidates that hold promise against the highly infectious virus. Some news organizations would prefer to maintain traditional practice and ignore early results of medical studies, waiting for peer-reviewed data but they are also competing to report on the latest studies.

Still, concerns arise routinely about the quality of rapidly posted data and the motivations behind announcements.

“Why does any company release early data?” Mr. Maris asked. “Clearly there is an appetite for it. People want to know that we are making progress. Having a vaccine is the clearest way to a full reopening and putting this behind us.”

Moderna’s preliminary results were promising. Its vaccine, the first to be tested in humans, appeared safe and stimulated antibody production in the first 45 study participants. And of eight who have undergone further testing so far, all produced so-called neutralizing antibodies, which can stop the virus from invading cells, and should prevent illness.

But there were no details — no charts, no graphs, no numbers, nothing published in a journal.

Releasing sparse data is not unusual in the biotech world, where companies often present early trial results months before they are published in journals. Publicly traded companies are required to disclose material information that might lead an investor to buy or sell shares. The company said federal researchers who are conducting the trial would be responsible for submitting the data to be reviewed and published.

Mr. Maris said that he would leave it to regulators to decide if the company had acted inappropriately in not announcing the stock sale sooner, and said that investors should have been told earlier that the company was considering a stock offering. “There’s something wrong with that,” he said.

Moderna, based in Cambridge, Mass., went public in 2018 and has been a favorite of biotech investors, given its focus on the hot area of immuno-oncology and its partnerships with companies like Merck and AstraZeneca, and with the Vaccine Research Center at the National Institute of Allergy and Infectious Diseases.

Its technology, based on genetic material called messenger RNA or mRNA, is considered highly promising.

“Messenger RNA is one of the hot new platforms,” Dr. Anthony Fauci, director of the infectious disease institute, said in an interview on Thursday, adding that it can be adapted quickly to produce new vaccines and scaled up easily.

Although Moderna has other vaccines in its pipeline, none have come to market, and the viability of its mRNA vaccine-making platform — the basis of the company — is on the line. It is a front-runner in the coronavirus vaccine race, and its stock has risen more than 250 percent since the beginning of the year. It closed at $69 a share on Friday afternoon, down 26 percent from a high Monday of $87.

Dr. Afeyan acknowledged that companies were now subject to far more intense scrutiny with so much riding on the outcome of drug development.

“People are basically saying, you know, one shouldn’t do this,” Dr. Afeyan said. “And if you don’t put out data, people will say, why are you withholding the data? People are trading without knowing the data. So it’s a tough situation to be doing science in, and we have no choice because we’re trying to develop a vaccine.”

With so many different interests demanding the latest information — including governments around the world — the company couldn’t withhold it from the public, he said. “As a public company, if we have it, we cannot give this to them and hide it from other people.”

Dr. Fauci said that while companies often release partial data, “My own preference, and what my group will do, will be to wait until we get the data solid and then publish it in a paper saying, ‘In the first phase this is what we saw.’”

Still, he considers Moderna’s preliminary results encouraging. The levels of neutralizing antibodies in the eight people tested for them appeared high enough to be protective, Dr. Fauci said. But he emphasized that eight is a small number.

“I have to underscore it’s still limited,” he said, “and that’s the reason why I just withhold my enthusiasm, but I still have some cautious optimism.”

Dr. Fauci said the big question remained: Will the vaccine work?

“When you’re developing a vaccine,” he said, “nothing is guaranteed.”

Moderna is not the only company that has failed to release detailed scientific data. Little has been known about another closely watched product, remdesivir, an experimental treatment for Covid-19 developed by the drugmaker Gilead.

On April 29, Gilead announced that it was “aware of positive data” about remdesivir’s performance in a federal trial. A few hours later, from the Oval Office, Dr. Fauci said the drug could modestly speed recovery in patients. Although he said it was not a “knockout,” Dr. Fauci — his agency ran that trial, too — said the drug could become the standard of care.

A few days afterward, the Food and Drug Administration granted emergency authorization to use remdesivir to treat Covid-19.

Weeks passed with no detailed data about the clinical trial being published, even though doctors were administering the drug with little information to guide them.

“It was a highly conflicted statement from a highly respected and deservedly respected scientist,” said Gary Schwitzer, the publisher of HealthNewsReview.Org, a watchdog publication that argues for more accurate science journalism. “So it brings you back to, what do we believe? Whom do we believe?”

Dr. Fauci said he and his research team decided to report some results when the study was stopped after an independent safety board found that the treated patients were recovering faster than those receiving placebos. For ethical reasons, all patients had to be offered the drug.

The information would likely have leaked out — especially given that, two weeks earlier, information from another remdesivir trial had been disclosed to the news site STAT, sending Gilead’s stock up.

Dr. Fauci announced that patients treated with remdesivir recovered in 11 days, compared with 15 days for those getting placebos.

“That was all the data we had,” he said. The full results were published on Friday in The New England Journal of Medicine.

The fast pace of research has caught many news organizations off guard, prompting case-by-case discussions on tight deadlines to decide whether — and how — to cover scientific news even when the quality of studies wouldn’t normally meet their standards.

Scientific articles normally take months to go through peer review. But now, many papers are being published on preprint servers, where scientists are posting research before it is accepted by a journal. The site medRxiv, which was founded last June, had 10 million views in April and has posted nearly 3,100 papers related to Covid-19 since January. A similar site, bioRxiv, has posted about 760 papers on the virus.

“People recognized that there was an urgent need to disseminate information,” said Dr. Harlan Krumholz, a cardiologist and health care researcher at Yale University, and a co-founder of medRxiv. which is pronounced “med archive.” “People recognized that even weeks matter in this moment when we don’t know very much.”

Asked about criticism that sites like medRxiv encourage the rash publication of bad science, Dr. Krumholz said these conversations were healthy and noted that articles in peer-reviewed journals could also be flawed. Submissions go through basic vetting to ensure the research is legitimate.

“Engage in whether it’s good science or not,” he said. “Let’s engage in the consequences of this.”

WSJ : Trump Considers Forming Panel to Review Complaints of Online Bias

Trump Considers Forming Panel to Review Complaints of Online Bias
Move is likely to draw pushback from tech companies; ACLU raises free-speech concerns

WASHINGTON—President Trump is considering establishing a panel to review complaints of anticonservative bias on social media, according to people familiar with the matter, in a move that would likely draw pushback from technology companies and others.

The plans are still under discussion but could include the establishment of a White House-created commission that would examine allegations of online bias and censorship, these people said. The administration could also encourage similar reviews by federal regulatory agencies, such as the Federal Communications Commission and the Federal Election Commission, they said.

“Left-wing bias in the tech world is a concern that definitely needs to be addressed from our vantage point, and at least exposed [so] that Americans have clear eyes about what we’re dealing with,” a White House official said.

Mr. Trump has long expressed that viewpoint, and in a recent Twitter post indicated that a plan to address complaints of bias is in the works.

“The Radical Left is in total command & control of Facebook, Instagram, Twitter and Google,” Mr. Trump tweeted May 16, adding that his administration is “working to remedy this illegal situation.”

Facebook Inc., which also owns Instagram, defended its practices when asked for a response to the nascent proposal.

“People on both sides of the aisle disagree with some of the positions we’ve taken, but we remain committed to seeking outside perspectives and communicating clearly about why we make the decisions we do,” the company said.

Twitter Inc. said: “We enforce the Twitter Rules impartially for all users, regardless of their background or political affiliation. We are constantly working to improve our systems and will continue to be transparent and in regular communication with elected officials in regard to our efforts.”

Alphabet Inc.’s Google declined to comment.

Jon Berroya, interim president of the Internet Association, a trade group, disputed the contention that tech companies tilt left.

“Online platforms do not have a political bias, and offer more people a chance to have their voice heard than at any point in history,” he said.

The American Civil Liberties Union’s senior legislative counsel Kate Ruane said any moves by the government carry significant risk of misfiring because of the companies’ free-speech rights and other concerns.

While it couldn’t be determined exactly what the administration might do, “we do know for certain that when the government tries to intervene in viewpoint-based content moderation decisions by private companies, what typically follows are debacles that undermine online privacy, safety and speech,” she said.

The administration also is considering new recommendations for revamping federal protections adopted by Congress in Section 230 of the 1996 Communications Decency Act, which gives online companies broad immunity from liability for their users’ actions, as well as wide latitude to police content.

Critics across the political spectrum have argued that Section 230 now affords too much power to the giant tech platforms.

Conservative groups in particular contend that big tech platforms engage in viewpoint bias in search rankings, news feeds, content moderation and other practices. The companies generally deny that they allow political biases to influence their decisions, although they sometimes have fine-tuned their methods in response to specific criticisms.

The administration’s moves—if they happen—would help highlight a complaint that Mr. Trump has raised frequently during his presidency, just as the 2020 campaign season begins.

Mr. Trump last summer convened a White House social-media summit where conservative critics vented about supposed big-tech bias. At the time, the administration also considered a range of possible actions, including taking steps to put the FCC and another regulatory agency, the Federal Trade Commission, in charge of policing internet censorship. But those proposals drew criticism from civil-liberties advocates and eventually stalled.

Two GOP lawmakers who are allies of Mr. Trump said the administration is moving closer to acting now as the 2020 election looms.

“The president is increasingly aware of the headwinds we face from big-tech bias,” said Rep. Matt Gaetz (R., Fla.). “There have been very active discussions about what the administration can do with executive action to create a fair marketplace of ideas,” he said.

Mr. Gaetz noted that White House chief of staff Mark Meadows, a former North Carolina House member and a leading conservative voice, was himself subject to a practice on Twitter known as “shadow banning” in 2018 that made his account difficult to find even when a user was searching specifically for him.

“When Twitter shadow banned Mark Meadows, I’m not sure they counted on him becoming chief of staff,” said Mr. Gaetz, whose own account also was subject to the restriction.

Twitter said at the time that conservative public officials weren’t being targeted based on their views, but because of how their accounts interacted with others that had violated Twitter’s rules. Twitter said it was making changes to its policy.

Mr. Trump is likely to use the online review panel to help energize his base in a year when online campaigning could take on added significance because of the coronavirus pandemic.

“What they [White House officials] would like to see is bringing awareness to this being an issue,” said Sen. Marsha Blackburn (R., Tenn.), who is generally aware of the discussions.

A Pew Research Center poll in 2018, for example, found that 64% of Republicans thought major technology companies support the views of liberals over conservatives. Some 43% of Americans overall thought major technology firms support the views of liberals over conservatives, the poll found.

Consideration of the new steps comes at a time of rising tension between the administration and Silicon Valley. The Justice Department has been gearing up to sue Google over alleged antitrust violations as soon as this summer, people familiar with the matter said recently.

Google said at the time that it continues to engage with the investigation, adding that “our focus is firmly on providing services that help consumers, support thousands of businesses and enable increased choice and competition.”