The United States, britain, canada and australia have issued a joint statement warning that chinas National Security law in hong kong would curtail individual liberties there. They said it raised the prospect of people being convicted of political crimes and would make existing tensions worse. President trump has signed an executive order targeting social media companies, after being angered by twitter tagging two of his posts as potentially misleading. The measure limits the legal immunity the companies have against being held liable for what people post on their platforms. Legal challenges are expected. The National Guard has been called in to help restore order in the American City of minneapolis, following two nights of unrest. Crowds have been protesting against the killing of an African American man at the hands of the police. Unarmed African American man, george floyd, at the hands of the police. The state governor said he took the decision following widespread
rioting on wednesday. Now on bbc news, its time for hardtalk. Welcome to hardtalk. Im stephen sackur. The covid 19 pandemic has plunged the World Economy into a deep recession. How long will it last and what kind of recovery can we expect . Well, in large part, that depends on what governments do next. Will they pile up a mountain of future debt in order to cope with todays crisis . My guest is the former governor of indias reserve bank, raghuram rajan. Do the old rules of fiscal discipline no longer apply . Raghuram rajan, in chicago, welcome to hardtalk. Thank you. Lets begin with a simple proposition that the covid 19 pandemic has been very damaging to the World Economy. The question is, just how bad is it going to get . Whats your answer . Well, it depends on this very big imponderable how successful are we to be in arresting the spread of the pandemic . We have dealt with the first phase in industrial countries. We have brought it down, we have brought the reproduction rate down below one and these countries are opening up. Is there a second phase . Of course, it is still rampant in the emerging markets, brazil, russia, india, and of course in africa, it is starting to grow in a number of places, so i think we still have to wait and see how bad it will get. It is already very, very bad. You recently wrote, im in the camp which has grown progressively more and more pessimistic
about the outlook. Is that because of your focus on some of the emerging markets or because of what you may perceive as mismanagement of the problem in some of the developed, richer countries . I think it is a bit of everything, right . What we have seen in industrial countries is Different Countries have had different degrees of success. That is also true of emerging markets. Vietnam is struggling to prevent its first death from the virus. On the other hand, brazil has had tens of thousands of deaths already and it isjust expanding. So, management has been variable but also we do not really know how bad this can get, whether we have a second wave. We spent an enormous amount of money already on cushioning the effects of the first wave. There is not a lot left in the kitty for the second wave, if that actually comes. What President Trump wants to see is a v shaped recovery, that is
a steep plunge down at the beginning the crisis, followed by a rapid ascent back to some sort of economic normality as people and the lid has been put on the spread of the pandemic. As people believe. Do you believe in this concept of a v shaped recovery . Well, it is possible to get a rapid recovery in some areas, for example, manufacturing, if you can get the supply chains working and if demand starts picking up. These are all big ifs. On the other hand, who is going to venture into a restaurant . Even in china with all the tracking they are doing, you still see that many restaurants are half or three quarters empty still. People are not confident enough to go into places which are very crowded. So, my sense is that any recovery is going to take place over time, especially in the high Contact Service sectors, hospitality, travel, et cetera, but even
in manufacturing, getting the supply chain synchronised and making sure your supplier in mexico also has his plant running and that your buyer in europe is willing to accept delivery. This is also going to take time. So, i think this v shape is looking a lot more optimistic, even if we do not have fresh outbreaks of the virus. What is interesting about your analysis there is that it is not just about controlling and curbing the spread of the virus, it is also about addressing public perception, confidence, attitude because, as you point out, in many sectors, important sectors of the us and wider Global Economy, im thinking aviation, all of those sectors that rely on Public Confidence in being in open spaces with other people, whether it be entertainment, restaurants, many leisure activities, there is now a profound confidence problem, isnt there . There is, right . In some sense, the only answer
to this is either knowledge that everybody has been vaccinated or that everybody has been tested recently and dont actually carry the virus, otherwise, youll always be worried there is somebody coming here who is a carrier, and what will that do to me . Lets get into the detail of Economic Policy making across the world and tap into your experience as both a former governor of the Indian Reserve bank and also chief economist at the imf. You have a lot of experience to bring to the table, particularly with the nature of fiscal policy and the use of debt. What we see in the United States and many other countries is vast, expansion of borrowing, of debt, to finance economic recovery packages, to help people in the here and now. You, traditionally, have been very cautious about the use of debt to fuel economic recovery and growth. Are you just as cautious today . Well, i think the Immediate Reaction when the virus hit was appropriate. The sense was this would be only a couple of months. That the policy objective was to put the economy in a coma, protect people, protect theirjobs, protect firms, and two months later, with the swish of the wand, the economy would wake up and we would be back to normal. That was the v shape recovery, the sense that this was all easily tackled. Now, as we see, it is going to take much longer and there is a real now, as we see, it is going to take much longer, there is a real question about whether the economy should be transformed in this process, whether it is enough to put it to sleep or whether we need a new economy to take care of all of the concerns about proximity, as well as the ability to now work at a distance that far more
people realised they have. So, there will be transformations. And are we keeping the economy from transforming . We are also discovering it is extremely costly to keep people at home, extremely costly to keep these lockdowns. The us has issued 3 trillion worth of debt this quarter. And a trillion here, a trillion there, it becomes real money very, very quickly. The reality is now we have to make hard choices, pick and choose. What do we protect . Clearly, people have to be protected but do we protect theirjobs . Perhaps they need new jobs elsewhere . We need to make sure that happens. We need to provide credit at that time, but do we have to keep a restaurant alive for the next year while it is closed . If i understand you correctly then, mr rajan, you seem to be saying that policymakers need to be a little bit more brutal, a bit more cold blooded and hard eyed about the Current Situation rather than popping up, as you put it, restaurants or maybe even airlines, which you may believe do not have a long term future
in their current form . Are you saying those businesses should be allowed to go bust and not to allow them to go bust is economically, deeply inefficient and unsustainable . Well, we certainly need to start taking advantage of bankruptcy procedures and restructuring. Some of these airlines will have to shed planes, some of them will have to downsize somewhat, given that air travel might be more constrained over the next few years. So, i think, now that we have steadied the economy a little bit, before the advent of new challenges, perhaps we should let the natural processes take over, market processes, like bankruptcy and restructuring. Some entities will obviously survive but they may need much less debt then they have. Piling on more debt is probably a bad option at this point. Ithink. Right. Isnt it time for some reassessment of your aversion to debt . Let me quote to you another respected economic, i know you know him well, ken rogoff, who has written a lot about the nature of the debt curve and how dangerous the National Debt can be to Economic Growth. He says, any sensible policy right now is going to have us racking up the deficit for a long time. And, he says, if we go up another 10 trillion, i would not even blink at that right now. So, he is saying this is a very special, unprecedented situation and our responses need to be unprecedented, too. We have to be careful in two ways. One, of course, is i do think we will require much more money to be spent but it may not be in propping entities up and trying to make sure nothing changes. But it might be in ensuring there is a substantial stimulus so that the massive unemployment we have starts being brought down relatively quickly, going forward. This may take the form, for example, of a massive infrastructure package in the us, but what i am saying is we need to start shifting because we will need resources for that also down the line. Of course, the post covid world will require stronger worker protections, better healthcare. That will also require money. So, lets make sure we are not doing the wrong thing at this point, which is keeping unviable entities alive at enormous cost to our finances. That is one. We have to be very careful. I understand your point about the need for transformation but i want to get specific on the question of how much debt is too much debt . Traditionally, economists like you have worried a great deal if nation states take on debt that represents more than 100 of their national income, their gdp, but we now look at a country like italy, which has been hurt badly by covid i9, its economy, frankly, in ruins. It looks as though their National Debt in the next year or two
will spiral beyond 160 or more of gdp. Are you saying that that is simply unsustainable and italy is going to have to completely rethink its National Economy . No, what has changed is the level of interest rates. They have come down a lot and higher levels of debt are affordable at these levels of interest rate. However, if you have an enormous amount of debt, it prevents you from doing some things, especially at times like this. Take italy again, italy has not had the massive spending packages that germany has had precisely because its debt is so high and it fears rolling the Financial Markets by taking on a whole lot more debt. Its stimulus has been in single digits, compared to the double digits that have been there in most Northern European countries. That is one very, very important concern. The second concern in europe is you will have a two stage europe. You have southern europe,
with debt to gdp in the 130 , 140 of gdp, and in italys case even higher, and you have a Northern Europe which is tootling along at 60 and 70 . A 50 percentage point difference. Thats going to create a whole lot of angst over the crisis, which is one reason why this common european budget that they are planning makes sense because these disparities get alarming in a single currency. That is a fascinating take and i want to push you further then on the worlds various reactions to the emergency, starting with europe. You seem to be suggesting that unless europe gets serious about fiscal integration, a much deeper economic union, then, the eurozone, as it is currently constituted, could collapse. Is that what you are saying . Because the divergences between Northern Europe and the south have become so stark, so pronounced, they are not sustainable in the current form . Thats broadly what im trying to say. Europe is really
an idealistic project. Northern europe has to ask whether it is idealistic enough about it to make some of the transfers that may be required going forward. You cant look at it purely in the sense of euros and cents. It has to be about the longer term goal and how we feel about it as europeans rather than individuals and nations. Of course, a lot of stuff goes into that, how much sovereignty are you willing to give up, how much common rules do you want . Different folks have different takes on that, but i would say that is an existential question for europe right now. Existential questions for europe, we have talked about donald trump and his determination, as he would see it, to make that a v shape recovery in the us but who do you see emerging from this covid i9 pandemic in the best economic shape . The latest imf analysis suggests
that while europe and the us will see steep contractions by the end of this year, maybe 6 of gdp contraction, china will eke out growth of perhaps i or maximum 1. 5 or 2 . India was still be growing, but only about i . Do you think this is going to hasten the shift in the balance of economic power in the world to the east, to china and, to some extent, india as well . Well, first, i think these numbers will have to be revised, given more recent data. China may well eke out a 0 growth, but i think india will not do as well, probably 3 , 4 , maybe more, and of course brazil and russia have also experienced significant rises in cases and worry about their economic performance. The reality is this is actually going to be as crushing a blow for the emerging markets, with the exception of a few like vietnam, south korea and china
that have managed to contain the pandemic, and the problem for many emerging markets and developing countries, especially in africa, is that theyre so dependent on a few commodities, on trade, for recovery, that even if they managed to contain the virus and prevent the extensive damage that is likely, given they have few resources to bail out firms and people, there is the problem of what happens after . How does the recovery take place . And they simply dont have the resources for a substantial stimulus. So, their stimulus depends on the industrial countries growing strongly and buying their stuff, and, you know, with all the constraints on trade we saw before the virus, and now the massive fight that seems to be brewing between the us and china, i really hope the world post covid comes together becomes because we really cant afford a trade war, especially in a number of the poorest countries in the world. Its interesting you say that, because all of the indications
are that Rising Economic nationalism and protectionism is exactly what we are going to see, and im very mindful that you wrote a book last year called the third pillar, in which you looked at the relationship between capitalism and democracy. And you wrote, if people lose their faith in the ability to compete in the marketplace, if their communities continue to decline, if they feel the elite has appropriated all opportunity for itself, popular resentment can turn to rage. Surely the covid i9 pandemic and the spiral of economic misery youve just outlined is going to, is it not, lead to that popular resentment leading to more rage . Almost surely, yes. So, what sort of hope is there . My hope is that we sort of see that this cannot go on. Something which is unsustainable has to stop. You cant have periodic crises,
huge levels of inequality, massive spending, and then repeat every ten years. We need to start tackling the problems that afflict capitalism and we need to start thinking how do we fix this inequality, which is problematic. And which is creating, according to some people, the weakness of demand that causes us to have these massive massively stimulating monetary policies that lead to the debt build up and all the conservatism in me that youve talked about. So we need to start thinking about the real economy how do we make it fairer . But mr rajan, youre a very well connected economist. You point to me one Global Leader right now who is taking on that difficult task of talking genuine economic transformation, for this being a moment of opportunity to rethink capitalism. Name me one. So i do think the us president ial election will offer some semblance of that choice, that is the democrats are certainly putting forward an alternative view. I think perhaps under Bernie Sanders and elizabeth warren, it was a little extreme, but i do think thatjoe biden has been moved a little more towards that camp. I do think the debates that it will create or it will engender will be very important, because it talks about the sustainability of society going forward. To my mind, this us president ial election is one of the most well, like every us president ial election but this one in particular, about resetting the tone, both for the dialogue within the United States, but perhaps across the world. Sorry, im trying to read between the lines. Are you saying four more years of donald trump would be disastrous
not just for the us economy, but the Global Economy . Ah, you can read between the lines. Let me say again i think this is an election which offers an important choice to the american people. Lets talk about the country from which yourfamily hails, india. You were obviously, as i said, the governor of the reserve bank of india, very Senior Adviser to the governments of mr modi and his predecessors. You fell out, i think its fair to say, with mr modi and his party over Economic Policy making, and some in his party said that you, in the end, proved that you were not a true indian because you didnt take care of, for example, the Small Business people who wanted access to credit that you wouldnt give them. So, the question is mr modi, despite the fact that infection rates are, at the moment, rising in india, is extraordinarily popular and his brand of hindu nationalism
appears more popular than ever. Do you look at india and believe that modi has a sustainable project and programme for his country, or not . Well, i think if you look at india over the last few years, unfortunately, Economic Growth has been declining and weve seen the budget deficits grow. Weve seen a rise in bad debts in the system, partly as a result of the easy credit that you said i was opposed to, and as a result, india enters this crisis in a somewhat different situation than other countries. It still has a substantial amount of Foreign Exchange reserves and it still is a big country with enormous resources, but they have to be used well. Now, so far, if you look at the overall infections, as well as the death rates, theyre relatively small compared to the population. The worry is theyre still growing after a substantial period of lockdown and, in fact, some of the management of this crisis whereby a number of migrants left the cities for their villages, may in fact have caused the virus to expand in those areas. So, india is in a difficult situation today. It does need to find the reforms that will enable it to grow, but it also needs to spend more money in stimulating the economy back to growth. Well, i think indians will be fascinated to hear you, mr rajan, saying the government needs to spend more money, but lets ask you one specific question to end about globalisation. Heres a dramatic quote from the Current World Bank chief economist, carmen reinhart. I think covid i9 is the nail in the coffin of globalisation. Youve referred your fears for an all out us china trade war. Is globalisation dead . It cant be dead, and thats the problem, right . We have a growing an Elderly Population growing in industrial countries. Demand is going to slow down. We have a young population in the emerging markets, and africa is really, really very young. So, if you look at the Economic Opportunities going forward, theyre so big and fostering a genuine globalisation, which works for everyone. My argument has been the democratic backing for globalisation has been wanting in part because we havent made sure the people left behind, especially in industrial country communities, but also in emerging markets, that they havent had a fair shot. And thats why you see a growing resistance. And my belief is if we rethink this, and this goes back to new leadership to rethink this process and to put in place policies that will lead to a better globalisation for all,
both for the industrial countries and the developing and emerging markets. Now, for that, i really think we really need to rethink our whole system. But in a word, and we must end now, but in a word, you seem to be saying without new and different and more ambitious leadership in the world, we are in for years of misery and possibly worse. Its the commodity in shortest supply today, and we really need that. As you said, things can get much worse. But hopefully we can turn this world around. I mean, theres so many big global challenges, Climate Change for example, that we need to deal with. And for that, you need global cooperation. But for that, you need leaders. And notjust in the us, in china, elsewhere, who are willing to Work Together to create that new world. So, iam hopeful that disaster brings rethinking, and rethinking then creates the possibility
of a better tomorrow. But thats hopeful me. Well, well stick with hopeful you at least for now. Raghuram rajan, its been a pleasure having you on hardtalk. Thanks forjoining me from chicago. Thank you. Hello. We know this spring has been warm. Its been very dry in some spots. And now news aboutjust how sunny its been, with the met office saying provisionalfigures indicate that its been the uks sunniest spring on record. And with High Pressure close by for friday into the weekend, most will stay sunny and dry, warm, very warm, even hot in some spots. In fact, friday, the flow of air around this High Pressure as it
moves north across the uk will favour parts of scotland to see the uks High Temperature of the day, close to 28 celsius. Now, we start the day with temperatures for some in single figures, though they will rise quickly in the sunshine. Any low cloud across parts of eastern coastal england will disappear, along with any misty low cloud around the murray firth in scotland. Orkney brightening up, shetland staying mainly cloudy. But for most of the uk, its sunshine all the way. It is now a prevailing east southeastly breeze. And that means that east facing coasts will see temperatures towards the teens rather than the low to mid 20s across the bulk of the uk, and, again, nudging the upper 20s in the hottest parts of scotland. Temperature not the only thing high. Uv levels as well. Strong may sunshine. Do take care if youre outside for any period of time. And pollen, moderate to high for many of us, as grass pollen levels are on the increase. Now, friday looks like a fine evening,
plenty of sunshine to end the day. Again, temperatures will head down overnight, so if you do try to cool the house down overnight, were expecting some spots, again, tojust dip down into single figures. And a largely sunny start to saturday morning. And again, just to show you the big picture, its High Pressure maybejust pushing out towards scandinavia, but it is still blocking weather fronts that would give us some rain otherwise from getting to us from the atlantic. So, on saturday, there may be a bit of patchy cloud developing here and there, the sun may turn hazy in some spots, but for most, its a sunny story, a brighter one in shetland as well. Still the breeze keeping some eastern coastal parts cooler than elsewhere. Again, were talking widely in the low to mid 20s. And then on sunday, again, some patchy cloud developing here and there, but for most places, it will be sunny, it will be dry, it will be very warm. Just a hint of something cooler at the end of next week. Welcome to bbc news. Im Lewis Vaughan jones. Our top stories the National Guard is called in to pacify protests in the us city of minneapolis, following two nights of unrest. Protestors call for justice as Police Officers are of george floyd, an unarmed black man. They terrorised, they murder oui they terrorised, they murder our children. We have done nothing. Western countries condemn chinas planned new Hong Kong Security law, saying it threatens basic freedoms. And targeting twitter President Trump signs an executive order aimed at social media companies. Easing the lockdown in england and scotland. From monday, people can gather in groups while keeping their distance