The president of the European Central Bank issued a stark warning to investors and global economies around the world, suggesting the downturn in financial markets over coronavirus fears could be as disastrous as the 2008 subprime mortgage collapse.
Christine Lagarde urged European Union leaders to raise spending during a call on Tuesday night in an effort to combat market turbulence caused by fears over the spread of the COVID-19 virus. She warned if measures weren’t taken to slow the economic turmoil unleashed by the virus, then financial markets could expect a “scenario that will remind many of us of the 2008 great financial crisis.”
In 2008, many banks, including industry stalwart Lehman Brothers, succumbed to bankruptcy after the subprime mortgage industry collapsed. By October of that year, Congress was forced into action, passing the Emergency Economic Stabilization Act of 2008, which authorized the Treasury to buy up to $700 billion in troubled assets to restore liquidity to the financial markets.
The European Central Bank is considering its options to slow the market fall and is expected to cut interest rates and utilize quantitative easing measures with the hope of encouraging lending and investment. The infusion of cash would help European banks ensure that loans are readily available. Lagarde warned that inaction from some European countries could lead to “the collapse of part of your economies.”
Global economies have felt the sting of quarantines and spooked citizens as the coronavirus has sent markets tumbling day after day in early March. The Dow Jones Industrial Average, which reached an all-time high of 29,551 on Feb. 12 before idling through the rest of the month, has fallen sharply as worries over the mystery illness mount.
More than 4,000 people have died globally, with more than 100,000 infected by the COVID-19 virus.
