The Great Repression

Economic policy is about to take a turn for the weird. UK government borrowing in April 2020 was as high as in the whole of fiscal year 2019-20, at over £62bn, whilst the Bank of England is now seriously considering reducing interest rates into negative territory. Such is the precarious state of the economy as measures to combat Covid-19 take effect that all of the things we previously took for granted are about to be turned upside down.

The fiscal position

Dealing first with fiscal issues, the Office for Budget Responsibility reckons that UK public borrowing will reach 15% of GDP in fiscal 2020-21 which would represent the biggest peacetime deficit on record (chart below). Governments have no choice but to pull out all the stops given that they have imposed measures which impact on people’s livelihoods. With governments having shut down large parts of the economy, those affected by the measures need some form of support as a quid pro quo. The question remains as to how we will pay for it. In the short-term governments have no choice but to borrow more. Although the UK did not enter this crisis with a great deal of fiscal headroom, it does have some. The ratio of net debt to GDP ended fiscal year 2019-20 at 93.3% but as a result of the surge in borrowing in the first month of the fiscal year it jumped to 97.7% in April – the highest since 1963 - and it seems only a matter of time before it exceeds 100%. 

A decade ago, Carmen Reinhart and Ken Rogoff, in their famous 2010 paper, Growth in a Time of Debt, argued that a debt ratio in excess of 90% has major adverse consequences for economic growth since an increasing amount of resources is then devoted to debt servicing. The low level of interest rates today means that debt servicing costs are at their lowest in history so the 90% threshold may be less binding than in the past (if indeed it ever was, as there remains a lot of controversy regarding this figure). Ironically, on data back to 1700 the UK’s average debt ratio is 99% (chart below). Evidently imperial expansion and the financing of wars did not come cheap. But at the beginning of this century, the debt ratio was around 30% of GDP and whilst the financial crisis of 2008 did a lot of damage, it is notable that the debt ratio has continued to climb during the Conservative government’s term of office. Having spent the past decade telling the electorate that the deterioration in public finances was all the fault of the previous Labour government, even before the Covid crisis, the Tories have not exactly had a great record on managing public finances.

That said, even a net debt ratio of 100% is likely to be easily fundable. Despite what the ratings agencies may say, the UK has a long track record of not defaulting on its debt and it issues in its own currency. Nonetheless, no government will be comfortable with debt ratios at current levels and this partly explains why many policy makers want to reopen the economy as soon as possible in order to get some tax revenues flowing into the Treasury’s coffers.

The monetary response

Whilst I have long been an advocate of a more activist fiscal policy, it is equally clear that fiscal policy alone cannot do everything and needs to be backed up by monetary policy. It is presumably for this reason that the BoE is discussing the merits of cutting policy rates into negative territory. Although there are some circumstances in which they might be useful, I have never been persuaded of the merits of negative rates (a view summarised here).  In very simple terms, they are designed to persuade households and firms to bring forward activity and represent an attempt by central banks to alter the time preferences of economic agents. For those with an eye on their retirement funds, the idea of negative rates is anathema and the impact on savers is one of the reasons why a case has been brought before the German Constitutional Court.

As I have mentioned numerous times before, one of the problems with the negative interest rate policy is that it operates only on the supply side of the credit equation. Reluctant borrowers cannot be forced to take out loans and in the current environment, where uncertainty is at a maximum, households and corporates will not borrow under any circumstances. A bigger concern is that once rates fall into negative territory, they will stay there for a long time. That has certainly been the experience in Japan and the euro zone. Indeed, the experience of the last decade has been that central banks never seem to believe that the economy is strong enough to support monetary tightening. Consequently if interest rates do fall into negative territory, I fear they would not quickly rebound. As the respected head of the BIS research department, Claudio Borio, noted last year, “A growing number of investors are paying for the privilege of parting with their money. Even at the height of the Great Financial Crisis (GFC) of 2007-09, this would have been unthinkable. There is something vaguely troubling when the unthinkable becomes routine.”

As to whether a policy of negative interest rates has much economic effect, the jury is still out. Evidence from ECB researchers suggests that negative rates have boosted economic growth in the euro zone, although Italy might beg to differ. But no central bank is ever going to produce evidence that says its signature policy is not having the desired effect so we should treat the results with some caution. However, it does have a real impact on the banking sector. I do not expect the vast majority of the public to shed any tears for banks, which emerged from the 2008 crisis in better shape than they dared hope, but negative rates will squeeze margins. At a time when the BoE is exhorting banks to continue lending because “it is in their interest to do so”,  a policy which makes banks think more carefully about who they lend to is inconsistent with this strategy. Evidence from Sweden suggests that initial moves into negative territory do get transmitted to lending rates but subsequent moves do not. In other words, the monetary transmission mechanism can break down quite quickly. 

We should be under no illusions that policymakers will have to take all available measures to get the economy back on its feet. Given the huge surge in sovereign debt, governments and central banks are about to embark on a prolonged period of financial repression in order to reduce the cost of debt servicing. By doing so, governments will be able to reduce the extent of fiscal austerity required to control public finances when the economy finally recovers. If this means a period of negative interest rates, so be it. However, there is nothing to be gained from doing so for a prolonged period although if asset bubbles, screwing future generations of pensioners and failure to use the market mechanism to discipline risk taking are your thing, be my guest.

Everything in proportion

A couple of weeks ago I wrote a piece looking at the ruling by the German Constitutional Court (GCC) which suggested that the ECB should demonstrate proportionality in the conduct of its asset purchases. It is worth revisiting the question to focus on the legal issue of proportionality, which is not well understood by non-lawyers in the Anglo Saxon world (including me). The reason for doing so is that the objections raised can be applied to the conduct of monetary policy around the world, not just in the euro zone, and goes to the heart of my criticisms about the overly lax monetary policy followed by central banks over the past decade.

Proportionality is not a concept which is enshrined directly into English law, which instead leans more heavily on the principle of (un)reasonableness. English law uses a standard known as Wednesbury unreasonableness to determine whether an action is such that “no reasonable person acting reasonably could have made it.” In case you are wondering, it gets its name from a 1948 legal ruling on a case between Associated Provincial Picture Houses and Wednesbury Corporation. Proportionality, on the other hand, is designed to check the infringement of citizens rights by legislative, administrative or judicial authorities and is enshrined in German law as far back as the 1880s. Without being an expert on law, my understanding is that reasonableness is concerned with the process by which outcomes are derived whereas proportionality is concerned with the outcome itself.

The GCC made the point in its ruling that the ECB’s Public Sector Purchase Programme (PSPP) has a number of economic side effects to which the ECB has not apparently given sufficient consideration. Asset purchases result in low interest rates which produce “considerable losses for private savings” and allow “economically unviable companies to stay on the market.” I would not contest these views but the complainants who brought the case argue that the ECB has not provided evidence to suggest that these costs are outweighed by the benefits of its actions. With the ECB having held policy rates in negative territory since 2014 and buying assets since 2015 in a bid to hold down bond yields, the extent and duration of monetary easing is increasingly a cause for concern because it magnifies the adverse consequences of the policy.

This goes to the heart of my own criticisms of central bank actions over the past decade. Indeed, I have made the point repeatedly that once the economy started its recovery from the 2008-09 recession, there was a case for central banks to take back some of the emergency monetary easing, if for no other reason that they would have more scope for policy easing when the next downturn hit. I have also argued that low interest rates have side effects which central banks have studiously ignored, particularly when it comes to their impact on future pension income. I once raised this question directly with the central bank governor of one of the smaller European nations, who admitted that he was aware of the problem but had come to the conclusion that the short-term considerations were more important. Arguably, the current generation of central bankers has displayed a lack of proportionality in their approach to monetary policy and we may only be aware of the impact of recent actions in the long-term. Admittedly, the Covid-19 outbreak has changed the calculus as central bankers are forced to take unprecedented action but it does not excuse their actions over the past decade.

The complacency in this regard was highlighted in Mark Carney’s last speech as BoE Governor when he suggested that society as a whole has not lost out from low interest rates because “the vast majority of savers who might lose some interest income from lower policy rates stand to gain from increases in asset prices that result from monetary policy stimulus, since only 2% of UK households have material deposit holdings without material financial assets or property wealth.” As I have pointed out before, a large part of society may indeed have seen an increase in the value of their wealth holdings, but since a significant part of it accrues in the form of housing, it is not easily realisable. Nor does it benefit those at the lower end of the income scale who are unlikely to have a large stock of assets. Carney’s post-hoc justification for the actions taken during his time as Governor would fail the GCC’s proportionality text.

When it comes to central bank decisions to ramp up asset purchases, it is not just the ECB which shows a lack of proportionality. Central banks argue that their inflation mandate gives them scope to boost asset purchases in a bid to return inflation to the target. But the evidence suggests that the policy has not worked because the likes of the ECB and the BoJ, which pioneered the policy almost 20 years ago, have singularly failed to boost inflation back towards 2%. Monetary theories of inflation have simply not worked over the last two decades – there has been no evidence that increasing the volume of liquidity in the economy has boosted prices (other than for financial assets), as the chart below indicates for the euro zone. If that remains the case, the good news is that central banks can continue creating liquidity without any adverse consequences for their inflation mandate. The bad news is that it undermines the case for the policy.

Nor should we necessarily buy the argument that central bank actions do not represent deficit financing simply because asset purchases are not taking place at the behest of the government. It would be naïve in the extreme to think that central banks and finance ministries do not coordinate their policies, particularly when in the UK the Treasury indemnifies the BoE’s bond purchases. None of this is to say that central banks should not buy bonds. However, the excuse that this being conducted for inflationary purposes is starting to wear a bit thin. It is really about creating space in the bond market to allow them to digest the huge flow of debt issuance which, as I argued here, does not have to constitute monetary deficit financing.

But if you believe that central banks have no other mandate than controlling inflation, this is a difficult case to make. Indeed, in the euro zone it is legally impossible. However, if central banks can argue that their actions are designed to prevent a breakdown of the sovereign debt market, which would have significant implications for the operation of economic policy, this would be a more proportionate response than hiding behind the inflation smokescreen. It would also be more honest.

Playing the long game is the only game in town

The support programmes implemented by governments have barely got off the ground but already central banks are stepping in to lend their support. The US Federal Reserve plans to offer an extra $2.3 trillion of credit and support the market for high-yield corporate debt in a bid to ensure that small and medium-sized businesses can access the central bank’s largesse. Meanwhile the UK government will borrow from the Bank of England to meet its financing needs via its long-established Ways and Means facility. This will allow the government to sidestep the bond market in order to ensure it has access to its funding needs. Since the amount borrowed is due to be repaid by the end of the year it does not constitute monetary deficit financing. But given the current strong demand for safe haven securities – a gilt auction this week had a bid-to-cover ratio of more than 3 – we have opened the floodgates to such unconventional financing measures much earlier than I expected.

In the BoE’s case, the irony is that the latest announcement came just a few days after the new Governor wrote a column in the FT making it clear that the BoE is not and will not be engaged in monetary financing. Andrew Bailey emphasised that “the UK’s institutional safeguards rule out this approach … [and] the MPC remains in full control” of the policy instruments designed to increase the central bank balance sheet. Simply put, if the BoE buys financial assets this is purely in line with the BoE’s inflation remit. But the element that is often overlooked is that the remit is “to maintain price stability; and subject to that, to support the economic policy” of the government, where the government’s policy objectives include a “credible fiscal policy, returning the public finances to health, while providing the flexibility to support the economy.” The BoE’s policy remit is about far more than simply controlling inflation – whatever it says in public.

But what is monetary deficit financing and why is it so “bad”? In simple terms, it amounts to central banks creating money to pay off the government’s creditors. The conventional argument is that it results in excessive liquidity creation that eventually results in higher inflation (too much money chasing too few goods). The textbook example of such a policy is the action of the Weimar government in Germany following World War I which chose to inflate away its debt by printing money but which instead resulted in the great hyperinflation of 1923. Admittedly it was successful as a debt reduction strategy but disastrous in terms of its other economic side effects. A century on from this experience, Germany remains scarred by the memory and was instrumental in writing the provision into the Maastricht Treaty that prohibits monetary deficit financing in the euro zone. More recently, it was practiced by Zimbabwe and the policy was only stopped when the currency became so devalued that the government was reputedly unable to pay for the ink required to print more banknotes.

It is thus generally accepted that allowing governments to control the monetary printing press is a bad idea for it may encourage them to over-expand the money supply. The conventional narrative is that allowing central banks to enjoy a degree of autonomy over monetary policy in the last two decades is one of the key factors helping to curb inflation. I have argued before that this is far from the whole story but it has certainly played a role. However, over the past decade central banks have bought huge amounts of government debt which has led to a massive rise in central bank reserves (i.e. liquidity creation) but not resulted in higher inflation. Indeed, the BoJ and ECB have struggled to push inflation towards their target goal of 2% despite a balance sheet worth 100% and 40% of GDP respectively (see chart, taken from the St Louis Fed). This is in part because the institutions which sold their securities to the central bank have simply gone out and bought other assets, notably equities, thus pushing up their price. There may not have been too much money chasing too few goods but there was a lot of it chasing a dwindling pool of high yielding assets. I have little doubt that liquidity creation will be inflationary in some form. It will surely push up asset prices although whether it inflates consumer prices remains to be seen.

The actions of the Fed and BoE in recent days confirm my suspicion that we will be engaged in financial repression for a long time to come (i.e. central banks will do everything in their power to keep interest rates low). They are likely to go further: The BoJ has been buying assets on an industrial scale for almost 20 years and both the Fed and BoE have a lot of headroom to ramp up their balance sheets without necessarily sparking CPI inflation if the Japanese experience is anything to go by. As it currently stands, central banks buy debt in the secondary market (i.e. not directly from the issuer) and for the foreseeable future they are going to be buying a lot of assets. Past experience suggests that at some point they will call a halt to the process. At that point, they can sit on their bond holdings indefinitely. As bonds mature, they can roll over the debt by cashing in the proceeds and use them to buy an equivalent amount of additional securities. In this way, the central bank balance sheet remains unchanged and it continues to hold the same amount of government debt.

Technically, this is not monetary deficit financing because the presumption is that at some point the central bank will sell its debt holdings back to the private sector. A small complication arises from the fact that in the UK, the BoE hands over the interest it earns from its bond holdings back to the Treasury so it is in effect monetising the interest payments, but that is small beer. A bigger issue is whether at some point the central bank will simply write off its government debt holdings. It is not going to happen anytime soon, so we can rest easy on that score. But they may surreptitiously be able to do so in the longer term. The BoE plans to hold £645 bn of bonds, which amounts to around 30% of annual GDP. Suppose that in the long-term nominal GDP growth averages 3.5% per year and that the BoE rolls over its debt holdings ad infinitum. After 25 years, the bond holdings are worth 13% of GDP and in 50 years just 5% of GDP.

Is anyone going to complain if in 50 years’ time, the BoE writes off (say) half of these holdings? The current generation of central bankers will be long gone and I certainly won’t be around to do so! Therefore, the issue of whether central banks are likely to monetise the debt holdings built up over the last decade is something we will only be able to judge long after the current crisis is past. Sometimes playing the long game really is the only game in town.

Rising to the challenge

After another week of market drama, with big price corrections and a drying up of market liquidity, central banks and governments are stepping up to the plate to provide the biggest support package in modern times. We should not be under any illusions about the nature of the economic shock that is unfolding before us and as a response risk is being socialised to an unprecedented degree. This is a recognition that the coming shock is likely to be significantly worse than Lehman’s for the simple reason that COVID-19 is affecting everybody’s daily lives, not just a small section of the community. 

The market position 

From a market perspective, the wild movements we have seen in recent days represent attempts to find an equilibrium based on a complete absence of information. Precisely because we have no idea of how bad the COVID-19 infection rate will be nor how badly the economy will be impacted, investors cannot make even the roughest of guesses as to where the bottom is. We hear lots of reports from investors keen to put their funds to work, arguing that there are bargains to be had. But whilst this is understandable, it may be totally wide of the mark. What appear to be solid businesses today might suffer significant knock-on effects in future as they emerge from the other side in worse shape than we thought. 

Take airlines as an example. Admittedly they were operating on thin margins anyway, so they were always going to be badly affected by the collapse in international travel. But the risk is that people will change their post-crisis behaviour, perhaps because they are less willing to travel or because they start to pay more heed to the environmental implications of air travel. As a result, investors looking for bargains today may be disappointed if they back the wrong horse.

This underpins my view that we should be wary of accepting the consensus view that there will be a V-shaped economic recovery. In a sense, a lot of displaced activity in the coming months will be “permanently” lost. After all, people will not visit restaurants or bars twice as frequently in future to make up for the activity that they will be forced to forego during the spring. And in the early stages of any recovery, the crisis mentality is likely to persist with the result that the rebound may be much slower than supposed. Thus, rather than taking a year to recoup lost output it may take up to two (or even more). Suggestions that this may mark the start of a second Great Depression may sound alarmist, but the idea that we are about to return to business as usual strikes me as overly sanguine. Without wishing to sound trite, recall that 10 years after the crash of 1929, the world was hit by another shock in the form of World War II which resulted in the biggest expansion of the state in history. Dark times indeed! 

Monetary policy has acted with what limited scope it had left 

The policy response was a little bit slow to get off the mark at first but the authorities have reacted decisively in recent days to do “whatever it takes” to provide support. Central banks have committed to pumping in huge amounts of liquidity, in the form of direct asset purchases to ensure markets can continue to function and in the form of loan guarantees for businesses to ensure their continued operation during the worst of the crisis period. The renewed bond buying is an easy way to provide liquidity to banks but this is a blunt instrument to support the overall economy. However, it will support the bond market following a period last week when it wobbled following concerns at the sheer amount of debt that governments will be forced to issue. 

Whilst loan guarantees are a positive step, they are still loans, which means that many companies operating with already-stretched margins will have to take on additional debt in order to survive. Many small businesses are going to take a major hit as their income flows dry up and there will inevitably be staff layoffs which will hit people particularly hard at the lower end of the income scale. Governments have increasingly realised this and have moved quickly to adopt unconventional fiscal solutions. 

But fiscal policy is where the action is

The UK acted swiftly on Friday to unveil its Coronavirus Job Retention Scheme (CJRS), in which the government has committed to pay up to 80% of the wages of furloughed workers, up to a limit of £2,500 per worker each month. This will cover the period March to May and will be extended if necessary. It will not be cheap. Some back of the envelope calculations suggest that if 10% of employees are laid off, this could cost up to £8bn per month if all workers are paid the maximum amount. This will obviously vary according to the average payout and the proportion of furloughed workers and the table below shows some illustrative monthly fiscal costs.

In addition to these measures, the UK government has announced a deferment of business VAT payments due between now and the end of June and has extended the period of interest free loans to small businesses from 6 to 12 months. It has also raised the standard rate of Universal credit and Tax Credits for one year from 6 April, with the result that claimants will be up to £1040 per year better off, and has committed to providing an additional £1bn of support to renters. As one who has called for many years for greater use of fiscal instruments to support the economy, it is gratifying to see the government act decisively in this way. There are those who have pointed out the irony that it is a Conservative government which has acted to leverage up the UK national balance sheet, having criticised Labour governments for doing just that. But in truth, this is the right thing to do. People are being asked to make sacrifices and need support to help them do so.

A question which has been put to me by non-economists is who is going to pay for all this largesse. In truth, we are – maybe not immediately, but in the longer run. The UK government will have to significantly raise borrowing – it is too early to determine by how much – and if other governments around the world follow suit, there is going to be a lot of competition for bond investors’ attention. Under normal circumstances, bond yields would be expected to rise sharply in anticipation of big increases in national debt, which would in turn imply a rising proportion of tax revenue being used to service debt. Governments would thus be expected to respond with fiscal tightening. After a decade of austerity, this will clearly not be a vote winner. However, we can expect central banks to continue bond buying in an effort to keep interest rates low as we enter a period of intense financial repression. Low interest rates appear set to stay in place for years to come.

Future historians will likely look back at this week in 2020 as the point at which the world changed. Hopes that we would resume our march towards pre-2008 normality appear to have been dashed for good. We are now on a different economic and social path, and nobody knows where it will lead.

Accounting for tail risks

Today’s announcement by the Fed of a 50 bps rate cut – the first intra-meeting rate cut since 2008 – is an indication of the extent to which it is taking seriously the potential for corona virus-related economic disruption. The die was cast yesterday when the OECD reduced its outlook for global growth in 2020 from 2.9% to 2.4% (chart) – just below the 2.5% rate which is considered to be consistent with global recession. There is little doubt that COVID-19 has left an impression on the Chinese economy during Q1, with the OECD cutting the 2020 growth projection from 6.1% to 4.9%, which would be the third slowest growth rate since 1980. 

It might yet turn out worse: As the OECD noted, “a longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America, would weaken prospects considerably. In this event, global growth could drop to 1½ per cent in 2020, half the rate projected prior to the virus outbreak.” Markets are certainly looking to the downside, with US equities down almost 3% following the Fed’s actions. So much for shoring up market confidence.

Just to put the coronavirus issue in perspective, the WHO’s latest Situation Report suggests that China has recorded 80304 cases out of a population of 1.428 billion. That’s an infection rate of 0.0056%. Based on the reported number of deaths (2946) this implies that (so far) the chance of an individual dying from the disease is 0.0002%. This is roughly a 1 in 490,000 chance which compares with a 1 in 10,000 chance of being involved in a fatal auto accident in China. Obviously the authorities have put in place some draconian measures to restrict movement which has significantly slowed the rate of new infections but which have had significant adverse consequences for the economy.

But without wishing to downplay the seriousness of the threat posed by the virus, it is important to keep the risks in proportion. Much of what the authorities are preparing for in Europe and the US represents the worst case outcomes and it is important to distinguish these tail risks from outcomes at the centre of the distribution. We have, of course, learned to our cost the failure to prepare for worst case outcomes. The failure to identify tail risks ahead of the Lehman’s bust arguably contributed to the severity of the downturn and on the basis of the old adage, “fail to prepare, prepare to fail” it makes sense to take precautions. If such measures save lives they are clearly worthwhile but we must be careful to avoid talking ourselves into a panic. 

The statement by G7 Finance Ministers and central bank governors early today suggested they would “use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.” It was only a matter of hours later that the Fed decided to act. Whilst the G7 was correct to suggest that greater use of fiscal measures was appropriate, it is questionable how useful interest rate cuts will prove to be. This is not to say they are unwelcome but the fact is that many central banks, including the ECB and BoE, have very little scope to cut, unlike in 2008 when there was plenty of downside for rates. This highlights the point that many of us have been making for some years that failure to normalise interest rates as the emergency conditions of 2009 eased, has left many central banks with little policy space to counteract the next downturn.

Moreover, it is widely accepted that the virus will act as a supply shock, as people are unable to work, rather than a demand shock where interest rate cuts can have more of an impact. To the extent that people’s demand patterns are altered, this is more likely to reflect a conscious change in behaviour rather than a  response to financial conditions. Where monetary policy can be more effective is in ensuring that business cash flow is not affected by a short-term breakdown in activity. Thus central banks may be able to make more capital available to banks by cutting the countercyclical capital buffer, in a bid to maintain the supply of credit.

On the assumption that the virus effects are relatively short-lived, it is imperative that central banks quickly take back their emergency easing measures in order that they do not become permanent. Fed Chairman Powell sidestepped this question at his press conference today, and whilst it is understandable that he does not want to telegraph the future course of policy, it is equally important for the long-term health of the financial system that markets do not continue to live on the fresh air provided by an overly lax monetary policy. In the event that the ECB cuts rates again, which is a realistic possibility, removing the stimulus as soon as is practicable will help to alleviate some of the damage which negative rates are doing to the fabric of the euro zone banking system. 

On the fiscal front, health services will obviously need the resources to ensure that they can function properly and governments are making the right noises to ensure that this will be forthcoming. Another issue which has come to light in recent days is to ensure that there is an adequate form of employee insurance in place. One of the problems for workers, particularly at the low end of the income scale, is that they do not get paid if they do not turn up for work. But if infected people turn up for work in order to collect their pay cheque they run the risk of infecting others. The last thing that hospitals need is for infected porters or cleaning staff to be running around the place. In the UK, those who are self-employed, who account for 15% of total employment, are not entitled to sick pay. Some form of temporary scheme to compensate them for loss of earnings is certainly an option worth considering, even though the practicalities of such a scheme are quite daunting.

But when all is said and done, the best thing the authorities can do to minimise the economic impacts of COVID-19 is to ensure that infection rates are held down. So far as China is concerned, there are hopeful signs that things are improving. The rate at which infections are increasing has not exceeded 2% for the past 9 days as the draconian measures put in place start to take effect. Outside of Hubei Province, the epicentre of the outbreak, there are only 13,000 confirmed cases and just 112 deaths – less than in the rest of the world (166). Prevention is always better than cure but preparedness runs it a close second.