What happens when you subject a flagging economy to a cocktail of geopolitical crisis, a major public health scare and investor flight? Europe is about to find out.
Much of the worry is rooted in uncertainty; no one knows how long the coronavirus scare will linger or how many lives will be lost. The only thing one can say for certain is that the economic impact will be considerable.
Germany’s governing coalition agreed late Sunday on a package of emergency measures to cushion the economic impact, including easier access to financing for companies, credit guarantees and tax relief. Chancellor Angela Merkel, who has faced criticism at home for not addressing the brewing crisis more directly, broke her silence on Monday, signaling the government stood ready to take additional measures to support the economy.
The EU is prepared to “use all the necessary and possible flexibilities for these exceptional circumstances,” European Commission President Ursula von der Leyen said Monday. That flexibility includes allowing capitals to provide aid to companies, something constrained in EU rules. In contrast to the eurozone debt crisis, when the European Central Bank rode to the rescue by buying government debt and vowing to defend the euro against attack, the bank is ill-equipped to cope with the current problems.For one, with interest rates already in negative territory, there’s little it can do in terms of monetary policy. Recent crises have been driven by troubled banks or sovereign credit crunches.
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