ECB president urges pan-European action to avert 2008-style financial crisis
German chancellor signals willingness to scrap zero-deficit rule
Christine Lagarde has urged leaders across the continent to coordinate and cooperate in order to avert a financial crisis akin to 2008.
Speaking in a conference call with other European leaders, the president of the European Central Bank (ECB) stated that her officials were considering all of the tools at their disposal to counter the economic impact of the Covid-19 outbreak.
Lagarde reportedly observed that Europe: “will see a scenario that will remind many of us of the 2008 Great Financial Crisis.” She then added that central bank intervention could only be successful if governments also implemented measures to maintain banks continued business lending.
Such comments were later mirrored by Mark Carney when he announced an interest rate cut of 0.50 per cent on the same day as the UK’s latest budget announcement. The outgoing Bank of England (BoE) governor stated: “There is no reason for this shock to turn into the experience of 2008, a virtual lost decade in a number of economies, if we handle it well.”
While the novel coronavirus outbreak has affected global markets since mid-January, European markets only really started to panic after its arrival and rapid spread throughout the continent.
Italy is now the worst-affected nation outside of China, with a much higher mortality rate than other affected countries. With the third-largest economy in the eurozone now in complete shutdown, there are fears that Italy’s already troubled banking sector could collapse.
Such an eventuality would severely affect both France and Germany who own much of Italy’s debt. Even without a specific banking crisis originating in Italy, the coronavirus outbreak still threatens to disrupt eurozone economies.
Angela Merkel shocked many at a recent press conference when she stated that up to “60 to 70 per cent of the [German] population will be infected.”
An indication of how seriously the German chancellor views the ongoing crisis can be found in her hints that Germany could reverse its heretofore sacred zero-deficit rule to cope with the outbreak.
Angela Merkel observed: “This is an extraordinary situation; we will do what is necessary…We will do it so that we can get out of this situation and, afterwards, we will see what it means for our budget.”
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