Days after warning European Union leaders that the novel coronavirus outbreak could create a situation mirroring the 2008 financial collapse, European Central Bank President Christine Lagarde demanded an immediate economic stimulus to jump-start the struggling economies of Europe.
In a Thursday address following a meeting of the Governing Council of the European Central Bank to discuss measures to address the coronavirus, Lagarde warned of a “major shock” to global economic strength and said an “ambitious and coordinated fiscal policy response is required to support businesses and workers at risk.”
“Governments and all other policy institutions are called upon to take timely and targeted actions,” Lagarde said.
Lagarde said the ECB will provide long-term loans to banking systems in the hope of providing liquidity, which would allow investors and traders to enter and exit positions without drastic fluctuations in price. Lagarde also announced the ECB will make available $135 billion for the purchases of private sector assets.
The ECB said it will purchase bonds to help slow the downturn but refused to lower interest rates. The decision not to lower interest rates, which are already at a historic low in Europe, sent the German and French financial indexes into further disarray. Each fell more than 8% following her speech.
Lower interest rates are used as a tool to incentivize banks to make loans on purchases such as housing and transportation. On March 3, the Federal Reserve lowered interest rates by half a percentage point, which provided the market with temporary relief before it plunged further in this week’s sessions.
Lagarde provided new assessments of European markets that suggest more downside is on the horizon due to “heightened market volatility” as a result of the pandemic.
Lagarde confirmed that she and ECB Vice President Luis de Guindos will not appear together at the next ECB news conference as a precaution while the disease continues to spread.
“Unless the situation develops very rapidly for the better, it is unlikely you will see both of us at the next press conference as we are working to split teams, including at the executive board level,” Lagarde said.
