Europe began a new campaign to shield economies from the coronavirus as the region’s two main central banks either delivered or signaled action to avoid a 2008-style crisis, and German Chancellor Angela Merkel promised to do “whatever is necessary”.
Bank of England governor Mark Carney announced an emergency interest-rate cut, aid for loans and easier capital rules for banks — to complement a stimulative UK budget unveiled hours later — while ECB President Christine Lagarde told governments that the ECB will deliver “super-cheap” funding later on Thursday.
While Ms Merkel’s rhetoric isn’t yet backed up by a fiscal push, even as the death toll mounts, the emerging impression is of a continent starting to grapple with the need for joined-up policy action.
That contrasts with a US administration whose own response has yet to take the decisive form that characterised the playbook of American officials during the 2008 turmoil.
With the containment measures in Italy, Spain and France becoming increasingly severe, Ms Lagarde warned European leaders that they could be dealing with an economic and financial crisis of the same magnitude they faced 12 years ago unless they act decisively to contain the damage caused by the virus.
Mr Carney’s action — in sync with the UK Treasury’s £30bn (€34bn) package — offers a model for melding of monetary and fiscal policy levers that Ms Lagarde is looking for.
Her plea for stimulus to back up a central bank that is practically out of ammunition has yet to gain traction in Berlin, which controls the most potent fiscal firepower of any eurozone country.
For now, the German government will offer liquidity support to companies hit by the economic disruption and extend funding for temporary layoffs that help firms weather the storm.
There will also be extra spending on health measures.
But the finance ministry insists that there is no reason yet to unleash the large-scale stimulus that many are calling for.
In fact, German officials have become so accustomed to calls for more spending that brushing off those demands has become second nature.
They aren’t convinced that it would boost the rest of the eurozone much and are reluctant to pile debt onto future taxpayers.
In the current scenario, they argue that putting money into the hands of consumers won’t do much good if the fear of infection stops them from going out and using it.
“Some countries are less attentive to the risk, or minimise it, because they are not yet hit,” Ms Lagarde told EU leaders in a video conference.
Evoking the crash of 2008, Ms Lagarde signaled the global dimensions of the coronavirus epidemic, in what could also be considered a veiled rallying call to global policymakers such as US President Donald Trump to escalate their response before it’s too late.
The actions showcase how the remaining crisis veterans still in high office may be providing leadership to international peers.
Mr Carney was Bank of Canada governor at the time, and Ms Lagarde was the French finance minister.
Even Ms Merkel — who was also embroiled in the meltdown — showed an increased sense of urgency with a rare press conference alongside her health minister as she set out her plans.
“The fact that we’ve got a coordinated, concerted policy response from the BoE and the UK government is very encouraging,” said Neville Hill, chief European economist at Credit Suisse in London and a former British Treasury official.
Mr Carney, in what may be his final act with just days left in the job, unveiled the central bank’s first emergency rate cut since that turmoil, matching the half-point reductions last week by the US Federal Reserve and Bank of Canada.
Officials also introduced a loan program that could exceed £100bn in aid, and reduced a special capital buffer to give banks even more room to lend.
The governor coordinated the action both with the Treasury and his successor, Andrew Bailey. The bank’s incoming chief, sitting alongside him, told reporters the bank has space to add more easing if needed.
The move was announced just hours before the UK budget, and presented as complementary to the £30bn stimulus unveiled by Chancellor of the Exchequer Rishi Sunak in an initiative of joint fiscal and monetary action that makes Britain’s response stand out among peers.
“These measures will help keep firms in business and people in jobs, and they will prevent a temporary economic disruption from causing long-term harm,” Mr Carney told reporters in London. “This is a big package.”
- The HSE have developed an information pack on how to protect yourself and others from coronavirus. Read it here
- Anyone with symptoms of coronavirus who has been in close contact with a confirmed case in the last 14 days should isolate themselves from other people - this means going into a different, well-ventilated room alone, with a phone; phone their GP, or emergency department - if this is not possible, phone 112 or 999 and in a medical emergency (if you have severe symptoms) phone 112 or 999
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