Tuesday, 27 Sep 2022

Coronavirus eurozone warning: EU outbreak sparks major fears as ECB predicts ‘major shock’

Its president, Christine Lagarde, vowed to use “all available tools” in a desperate bid to keep the bloc’s single currency bloc afloat as the virus continues to spread. The ECB announced an €120 billion increase in its quantitive easing programme to buy more bonds by the end of the year. This comes on top of its existing commitment to by €20 billion a month and a new pledge to offer banks cheaper loans so they can lend to small businesses.

Ms Lagarde warned: “The latest indicators suggest considerable worsening of the near term growth outlook.

“I think it’s clear to all of us that the economies of the world and certainly the economies of the euro area are facing a major shock.

“It will clearly depend on the speed the strength and the collective approach that will be taken by all players. First and foremost and on the frontline in our analysis of the situation are the fiscal authorities and the European institutions.”

The Parisian predicted a significant slowdown in production, as well as in domestic and foreign demand.

She urged European governments to roll out their own fiscal actions in order to limit the impact of coronavirus on the bloc’s economy.

“An ambitious and co-ordinated fiscal policy response is required to support businesses and workers at risk,” she said.

However, the ECB’s latest package of measures refuses to cut interest rates unlike the Bank of England or the US’s Federal Reserve.

“The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00 percent, 0.25 percent and -0.5 percent respectively,” the EU’s central bank said in a statement.

The announcement prompted a sharp tumble in value of European stocks by as much as 10 percent, one of the worse days on record for the Stoxx Europe 600 Index.

Holger Schmieding, chief economist at Berenberg, said: “None of the ECB’s measures or anything other monetary, fiscal or regulatory policy initiatives can be the circuit breaker in the recession into which the Eurozone seems to have fallen this month.

“But the ECB package, and further steps by bank supervisors as well as by fiscal policy, can limit second-round effects.”

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European stocks have slumped 31 percent since last month’s record high, with the global response to the coronavirus outbreak seemingly inspiring little confidence amongst markets.

Germany, the EU’s largest economy, is expected to up spending in a bid to lift the Eurozone but has so far failed to do so.

Manish Singh, of Crossbridge Capital, said: “It’s not a liquidity problem. This battle is for Merkel to step up and fight, Lagarde is the foot soldier in this coronavirus war.

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“The market needs to see decisive and effective political and fiscal leadership from the EU.

“Good first step, but not enough to lift the mood and change sentiment. We need strong fiscal response. Monetary policy bullet is spent and just a band-aid.”

German air carriers will meet the country’s government to discuss an emergency cash injection in the wake of the US travel ban on European flights by Donald Trump. 

Thomas Reynaert, managing director at Airlines for Europe said:“To be clear, airlines will continue to look after our passengers and our staff as best as we can under the circumstances — but immediate action to alleviate the impact of this crisis on our sector is greatly needed.

“It is also vital that any national measures proposed by third countries to support their national industries do not undermine the competitiveness of European airlines or otherwise disadvantage EU aviation.”

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