The coming crisis: how it will be, what triggers it and how to buffer it

(To David Rossi)
29/02/20

"Coronavirus is like flu"1, is often heard by many beautiful souls. So let's make them happy and treat it as such, also because it undoubtedly has the potential to hit as much as seasonal viruses.

At the end of the 2018-2019 flu season, there had been 8.104.000 cases. Since - in the words of Walter Ricciardi (WHO) - 10% of Covid-19 patients have complications that must be managed in the hospital, we are talking about 810.000 potential patients. Now, if you want to reduce this figure to one third, that is, to those who are at immediate risk of death (and perhaps treating others at home, with the risks that follow ...), we reach 270.000 patients with an important impairment of respiratory functions. Hence the consideration that, apart from the fact that in Italy we do not have many hospital beds and even if we had them, they would not all be needed for potentially infectious patients, it is still worth making a calculation ...

The cost of a patient in II level hospitalization in Italy is around 6.000 euros for an average stay in hospital of just under 9 days. Wanting to calculate a medical stay of about four weeks, as is the case in Covid-19, we should at best bring this cost (consisting of 30% of simple operating-management costs, such as food and accommodation) to around 18.000. Thus, it would come to a frightening cost of 4,8 billion euros only for the treatment of serious patients in the hospital setting.

What has been said so far does not include the construction of new structures, the purchase of machinery and equipment (a machine for filtering arterial blood can cost even more than half a million euros), the extraordinary cost of insulation, the costs for purchase of batches of drugs and many other items.

Now, in order not to leave you completely ignorant, we must say that the Piedmont Region has estimated the cost of building a new hospital at € 270.000 per bed. Unless you want to accumulate them in gyms and barracks and reducing this cost to a third, the cost of activating enough hospital beds to accommodate two thirds of patients with severe respiratory problems2 - spread over six months and with a hospital stay of one month each - would be equivalent to another 2,7 billion euros, for a total of 30.000 beds. Admitted and not granted that they can be built in a few months ... Obviously, we only talked about the physical structure of the hospital, not about machinery, laboratories etc. The 2,7 million could easily double or, without exaggerating, triple.

These are just some of the figures in the health sector. But the costs of this "super influence" would go far beyond that.

What about the millions of hours of work lost? Even imagining that only 40% of the sick (8 million and broken, remember?) Were busy and that 80% of them recovered in a week, the remaining 20% ​​would take at best a month to return to full efficiency. Imagining even just 20 euros of gross hourly wages, 40 hours per week and 150 hours paid per month, we would talk about a cost for businesses of over four billion. To make a comparison, the entire IRAP revenue equals 12 billion.

What about the costs for the country system? A 20% drop in the tourism sector (which generates just over 5% of national GDP and represents more than 6% of the employed), would amount to a loss of around 25 billion in turnover, over three billion in VAT revenue for the state and, in all probability, at least 200.000 jobs.

A 20% drop is one optimistic scenario, mind you: at the moment, with less than a thousand cases of Covid-19 in Italy, we are talking about a collapse of over 50%. If it extended to the whole of 2020, our country would lose 2,5% of GDP, almost a tenth of the VAT revenue for the state and would risk seeing more than a third of receptive and recreational businesses, historically undercapitalised, go bankrupt. In order to survive, those same companies activated credit lines and loans with banks.

Only by focusing on the tourism sector, banks - already suffering - could receive a blow by hundreds of billions for insolvencies, which would lead the state to have to deal with several desperate cases. The state itself would have lost one third of VAT revenue and would face at least a dozen billion of extraordinary investments in the healthcare sector. At the same time, with GDP falling by over 2,5 percentage points and the deficit well over 5%, public finances would be at least at risk, even considering the likely boom in the spread, that is, the higher debt financing costs.

And we limited ourselves to tourism, without for example remembering the fashion sector, which weighs 4% of GDP and is subject to the devastating effects of the next international recession. Not to mention the car, the the packaging and many other industrial areas in which we are leaders ...

Well, perhaps precisely in such a scenario, with the sovereign state wobbling, the European Union could be useful, also because the Italian government - whatever the majority and whoever was the premier - would have its hands tied, unable to finance itself if not with recessive policies (read: more taxes).

However, this crisis would be systemic, not only Italian: the Union should take on - possibly borrowing through the issue of sovereign bonds - the higher costs for the health sector, including those relating to public order, in all 27 countries. Then, it should activate a save-employment and save-employment fund that would allow small and medium-sized enterprises to finance themselves on favorable terms for the short and medium term.

This would not be enough to appease currency storms and bank earthquakes: it would be necessary to grant a lot of liquidity at zero cost or with negative interest to the credit system, but above all it would be necessary to extend and intensify quantitative easing, to reduce the cost per interest of the securities and the differences between states.

The scenario you have seen has been suggested by many who speak of a reassuring element of the fact that coronavirus will behave like seasonal flu.

Terra-flat readers and those with a golden heart will almost certainly not have understood a tube of our analysis of a possible and perhaps even probable scenario. Yes, likely: if you ask me if it will happen, I answer that governments and citizens ... are working hard to make sure that this is the scenario for the coming months: someone you called "alarmist" tells you that instead now ... well, look around.

Dear readers, you do not terrapiattisti and without beautiful soul, tighten your belts. And since you're there write to the president of the board, to your favorite football player, to your favorite singer and to the mayor of your regional capital to show them around, go to restaurants, enjoy theItalian lifestyle, strolling through the alleys of the villages and the shopping streets. The world must know that in Italy we are not worse off than they are, that they have never done serious tests in their countries, and that indeed we eat and live better here. Thus, perhaps the tourism and fashion sector will not suffer catastrophic effects. And readers do the same: have a dinner outside (without shaking too many hands, of course), give gifts and visit a city of local art. In short, tighten your seat belts but ... not your wallet, if you don't want to accelerate the crisis.

We can do it, because ... we are a great people!

1 Note well: it is more or less correct to say that the coronavirus behaves in a similar way, not that it is the same thing as a normal flu.

2 Therefore assuming that 90.000 can be easily accommodated in existing hospitals.

Photo: US Army / San Camillo Forlanini Hospital / European Central Bank