ECB head Lagarde calls for Europe to do more to rescue their economies from the Covid-19 storm

The ECB stepped up its response to the coronavirus crisis by cutting funding costs for banks, but refrained from boosting its bond-buying program and renewed its call on politicians to provide more fiscal support.
ECB head Lagarde calls for Europe to do more to rescue their economies from the Covid-19 storm

The ECB stepped up its response to the coronavirus crisis by cutting funding costs for banks, but refrained from boosting its bond-buying program and renewed its call on politicians to provide more fiscal support.

Hours after data showed the worst three-month contraction in a quarter-century of statistics, President Christine Lagarde warned that the eurozone economy could shrink as much as 15% in the second quarter and 12% over the full year.

The magnitude of the shock demands “an ambitious and coordinated” fiscal response, she said in a virtual press conference.

Finance ministers should “have a joint approach and show solidarity to those most affected by the crisis.”

Her comments reflect the EU’’s struggle to come up with a unified response. So far, most government action has been at the national level.

Leaders have asked the European Commission to devise a broader proposal by May 6, though its unclear how to resolve disagreements on whether aid should take the form of grants or loans.

Likewise, Germany and the Netherlands have led opposition to joint debt over fears they’ll end up with much of the bill.

The squabbling has unnerved investors, who fret that heavily indebted nations such as Italy will be tipped into a deeper crisis. The country’s credit rating was unexpectedly cut by Fitch this week.

Italian bond yields initially rose when the ECB announced that it will keep its pandemic bond-buying programme unchanged at €750bn.

They then fluctuated as investors digested the central bank’s other actions, which included de facto interest-rate cuts for its loans to banks.

The lowest rate on a targeted programme that gives banks incentives to lend to companies and households will fall to 50 basis points below the deposit rate, meaning they will be able to borrow for minus 1%.

The cost of a new non-targeted facility will be minus 0.25%.

“For today, it’s enough,” said Carsten Brzeski, an economist at ING in Frankfurt. “So much has been announced in the past six weeks.”

Bloomberg

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