The family owners of Due Ladroni, one of the favourite restaurants of Roman high society and known for its glamorous late night crowd, are feeling the pinch of the Italian capital’s 6pm coronavirus curfew that has wiped out 70 per cent of its turnover.
“Our customers are used to coming here for late dinners after the theatre, but there is no theatre,” says Michela Di Maria, who now runs the eatery built up by her late father with her mother and brother. 
Normally a dinnertime venue for politicians and business leaders to mingle with actors and models and where the paparazzi once lurked in the piazza outside, it has been reduced to serving only lunches.
“People just don’t drink as much, or eat as much at lunch as they do at dinner. They are not eating oysters, they come in for a plate of pasta,” says Ms Di Maria. She believes a new closure of all restaurants in Rome is likely, as has already happened in other parts of Italy such as the northern provinces of Lombardy and Piedmont. 
With Covid-19 infection rates in Italy and many other countries soaring well above those reported during the first wave in the spring, the big worry for European policymakers is that the restrictions on struggling businesses like Due Ladroni may stretch them to breaking point and put strain on the region’s banking system.
Across Europe, varying degrees of national lockdowns have been reintroduced to try to contain the resurgence of the pandemic, which is once again threatening to overwhelm public healthcare systems. Restaurants, bars, gyms, cinemas and theatres have been forced to close and curfews are in force across the region, while France, Ireland and Belgium have closed non-essential shops — prompting uproar from independent shopkeepers. 
Even though the new restrictions are milder than in the spring and most schools and factories are staying open this time, the measures are still expected to cause another downturn in the economy, which remains well below pre-pandemic levels despite a strong third-quarter rebound. 
The 19-member eurozone was already on the brink of recession before the pandemic struck, weighed down by trade tensions, Brexit worries and disruption caused by a clampdown on emissions at carmakers. Having been hit harder than other advanced economies by the first wave of the virus, which plunged Europe into a record contraction in the first half of the year, the bloc partly recovered in the third quarter. But it is now expected to endure a double-dip recession, dragging it further behind the US and Asia.
The resulting economic pain could have big consequences, especially for services companies such as restaurants, hotels and airlines that rely on human contact and have borne the brunt of the crisis.
With several vaccines now close to going into production, there is at least light at the end of the tunnel. But EU officials are worried about the economic damage that will be caused before life returns to anything approaching normal.
Christine Lagarde, European Central Bank president, said last week that the second wave still poses considerable danger for the economy. “Firms that have survived up to now by increasing borrowing and drawing on their savings could decide that remaining open no longer makes business sense,” she added.
The ECB is warning that fallout from the pandemic could produce €1.4tn of non-performing loans in a severe scenario — more than the 2008 crash. While this prognosis is seen as alarmist in some quarters, it stirs memories of a decade ago when an economic crisis morphed into a financial crisis that threatened the existence of the eurozone.
Lorenzo Bini Smaghi, chairman of French bank Société Générale, says many retailers and restaurants are hoping the lockdowns would be lifted in December, as they are “counting on Christmas” to save them. But he warns: “If that is gone then the impact will be very strong.”
Prescription for recovery
There is one big difference to the financial crisis. This time, Europe’s response has been much swifter and more forceful. Olaf Scholz, Germany’s finance minister, hailed the EU’s creation of a €750bn recovery fund to support the hardest hit countries as a “Hamiltonian moment”, invoking the first US Treasury secretary who helped to create US fiscal union by taking on the debts of the states in 1790.
A plethora of government furlough schemes, loan guarantees and tax deferrals, combined with the ECB’s ultra-loose monetary policy, have managed to avert a big wave of business failures or job losses. Instead, insolvencies have fallen in many countries this year. In Germany, the requirement to declare insolvency has been suspended temporarily. While the banks’ share prices have fallen and they have increased their provisions for an expected wave of bad loans, these are yet to materialise.
The global economic outlook has brightened with the news that vaccines developed by Germany’s BioNTech with Pfizer and by Moderna of the US have been more than 90 per cent effective in tests and could start production within weeks, fuelling hopes that an end to the pandemic is in sight.
Olivier Blanchard, former IMF chief economist, says the vaccines’ unexpectedly high efficacy rates are “indeed a game changer” that implied “it is now likely we shall be out of the woods by the end of next year”. He adds: “Thus, other things being equal and if we control the current explosion of the virus, it should help confidence and give a boost to demand now.”
Some policymakers even see the potential for a bounce back in the economy similar to the booming prosperity that followed the Spanish flu a century ago.
“Post world war one and two waves of the Spanish flu at the start of the 1920s, economies and societies were quite devastated,” says Olli Rehn, governor of the Finnish central bank. “We’ve had a financial crisis and now a pandemic, with savings rates going very high, so if there is no big increase in insolvencies we cannot rule out that there will be quite a big rebound — even if it is not quite the Roaring Twenties.”
Mr Rehn says a substantial monetary and fiscal stimulus was still needed “to build a bridge over these troubled times”. However, he adds that Joe Biden’s election as US president would also provide a boost for Europe by reducing trade tensions, which have hampered the region’s export-focused economy since Donald Trump entered the White House. Output and orders at Europe’s manufacturers have already been rising swiftly, driven by exports to Asia, particularly to China — in contrast to the more sluggish services sector.
The eurozone demonstrated its resilience by bouncing back much faster than most economists expected in the third quarter with record growth of 12.7 per cent. “The strength of the rebound in the third quarter suggests that the initial policy response was effective and the capacity of the economy to recover is still in place,” said Ms Lagarde. “But it will require very careful policy management to ensure that this remains the case.”
Regional scarring
Even if an effective vaccine is approved quickly, it will take many months for it to be produced, distributed and administered to enough people to return life to something resembling normality. Economists worry that many more businesses could collapse before then, pushing up unemployment, and even after the pandemic ends there are still likely to be parts of the economy suffering longer lasting damage, such as airlines and retailers.
“The vaccine will change things, but it is not for tomorrow,” says Lucrezia Reichlin, an economics professor at the London Business School. “The crisis will cause some scarring, particularly in certain sectors and regions.” To avert a plethora of bankruptcies among small family-owned businesses, European governments “need to be more innovative” by providing grants or equity injections, says Ms Reichlin, the former head of research at the ECB. 
Germany, France, Italy and Austria have already pledged tens of billions more euros in aid to offset revenue losses for companies hit by the latest lockdowns. Vítor Constâncio, former vice-president of the ECB, says other countries should follow suit and even extend support more widely, such as to restaurants in his native Portugal, which have not had to close but are still suffering from fears about the virus.
“The vaccine seems certain to be coming by next spring, so people and firms have to be kept afloat until then,” he says.
Monika Schnitzer, an economics professor at Ludwig-Maximilians-University of Munich and adviser to the German government, says businesses such as shops, hotels and cafés that rely on customers being in city centres were “in a structural transformation even before the crisis, and this has been exacerbated by the crisis . . . these sectors will have to change”.
Some European businesses in the hardest hit sectors are on the brink of collapse. Norwegian Air, the heavily indebted airline, said for the first time last week that bankruptcy was a possibility. In Spain, the 210 staff of Majórica were recently told that the 130-year-old company was filing for insolvency due to a sharp drop in sales of its artificial pearls during the pandemic.
Raymond Torres, chief economist at Funcas, Spain’s savings banks foundation, says: “If the pandemic goes on significantly longer there is the risk of zombification, particularly in the most affected service sectors — transport, hospitality, tourism — which means not so much a problem of lack of liquidity as possible insolvency.” 
Balearic chill
Nowhere is the pain of lockdown restrictions being felt more acutely than in Spain’s Balearic Islands, where the economy depends on attracting tourists to locations such as Mallorca and Ibiza, and where output collapsed by 21 per cent in the 12 months to the end of September. For the year as a whole, the Balearic regional government expects a fall of almost 30 per cent — worse than during the financial crisis.
“When the crisis hit in March, our hotels had contingency plans of two, three, or six months,” says María Frontera, head of the Mallorcan hotel business federation. “But now we have to have contingency plans of two to three years, because that is how long it may take activity to return to normal . . . There are a lot of hotels that will not be able to reopen next year, since although there will be a reactivation, we know that demand will be very low.”
Ms Frontera adds that government loans have so far kept the sector afloat. Her own Hotel Marina on the northern coast of Mallorca, which her grandparents opened 85 years ago, needed to borrow €1m. But while such loans have prevented still greater damage to the Spanish economy, it may be difficult to grant more of them as the crisis continues, and the strain on the country’s businesses and banking sector increases.
Pablo Hernández de Cos, governor of Spain’s central bank, has been warning about the risks of simply extending more loans to get through the crisis, which could render companies insolvent. “The mutation of this crisis into a banking one would be devastating,” he warned in a recent speech.
“The crisis has already generated an increase in the level of indebtedness of many firms,” he noted, calling for “more focused measures” that would not increase companies’ financial obligations — such as direct grants, temporary capital injections, and more streamlined debt restructuring and insolvency procedures.
European governments are counting on the €750bn recovery plan that EU leaders signed up to in July to support the extra spending they are doing to absorb the impact of the pandemic and kickstart a recovery.
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The full EU budget and recovery package — more than half of which is to be paid in grants — has yet to come into force, however, and member states still need to navigate opposition from Hungary and Poland to a so-called rule of law mechanism that would tie payments to compliance with EU values. 
Even assuming the recovery fund sees the light of day, it will take some time for the bulk of the cash to start hitting member states’ coffers after an initial down payment early next year. In the meantime, the commission is urging capitals to keep their own fiscal taps open.
“The consequences of this crisis will be deep and long, and this means that our fiscal policies should be kept in this very supportive stance maybe for a longer time than one would have thought,” says Paolo Gentiloni, the EU’s economics commissioner.
At Due Ladroni next to the Tiber River in Rome, the government has contributed about €11,000 in aid so far — a tiny sum for a business that normally turns over more than €1.5m a year. On top of the lost revenues, Ms Di Maria says it had the extra cost of complying with virus prevention rules by buying bigger tables, masks, plastic menus and barriers for the outside terrace. “Every time we spend money they close us,” she adds. 
“If they are going to close the restaurants they need to give us more help,” she insists. “We have worked hard for years and we live on this. We are now having to spend our own private money to invest in the business and pay the staff.”
Frankfurt: virus silences a famous hotel piano bar
The Hessischer Hof, Frankfurt
The Hessischer Hof is the only five-star hotel in Frankfurt and for decades visitors to the city’s annual book fair spent their evenings amid the live piano music and cigar smoke of Jimmy’s Bar. But now its aristocratic owner, Donatus Landgraf von Hessen, a distant relative of the German emperor Friedrich III and Queen Victoria, has decided to shut it down.
The fate of the hotel and 63 of its employees, which Mr Landgraf von Hessen says he decided “with a heavy heart”, shows how the pandemic is even causing deep economic pain in Germany, which has so far suffered less than many peer countries during the crisis while keeping sections of its economy open. 
In particular, the hotel’s demise reflects the collapse of the international trade fair business, which had been a big source of income since it was built in 1952 next to the city’s sprawling conference centre. Like so many events, this year’s Frankfurt’s book fair was online-only. 
“In the end, there was no alternative from an operational and strategic point of view,” says Mr Landgraf von Hessen, whose family owns hotels, castles and a wine business. “All forecasts clearly indicate that the conference, trade fair and business travel segments will only recover in the very long term and that further high losses must be expected in the next two years.”
Additional reporting by Sam Fleming in Brussels and Guy Chazan in Berlin