Lawrence GashChristine Lagarde, the President of the European Central Bank (ECB), has signalled her readiness to act to soothe the uncertainty caused by the ongoing coronavirus epidemic.
In a statement Lagarde observed the risks for “the economic outlook and the functioning of financial markets” caused by the “fast developing situation”. And affirmed that the ECB stands “ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks.”
Although the Covid-19 virus hit international headlines at the end of January and start of February European markets remained somewhat buoyant as the spread was contained within mainland China.
However, after the outbreak’s arrival in Europe last week, major European indices suffered their largest fall since the global financial crisis of 2008. In the past five days the pan-European Euro Stoxx 600 fell by 7.43 per cent, after hitting all-time highs the week before.
Many European indices gained at the start of this week, thanks in large part to widespread expectation of upcoming fiscal stimulus. Already, Italy, the worst affected European nation, has announced a €3.6bn (£3.13bn, $4bn) package in addition to its initial stimulus of 900m.
With the Organisation for Economic Co-operation and Development (OECD) cutting its forecast for 2020 eurozone growth from 1.1 per cent to 0.8 per cent, a number of European figures have discussed potential fiscal and monetary reactions.
Paolo Gentiloni, the EU Commissioner for Economy, argued that: “The Eu is ready to use all the available policy options if and when needed to safeguard our growth against these downside risks.” While the Bank of England vowed “to ensure all necessary steps are taken to protect financial and monetary stability.”
Such comments across the continent have buoyed European stock markets. By mid-morning trading on Tuesday the DAX, AEX and Euro Stoxx 50 have all gained more than 2 per cent, while the FTSE 100 stands up 1.82 per cent at 6776.07.
Many have looked to the economic powerhouse of the euro zone to gauge upcoming activity. The German Economy Minister, Peter Altmaier, has commended the stimulus proposals of the country’s Finance Minister and urged that the coronavirus cannot be allowed to infect Germany’s economic growth.
In the long-term however, with the Covid-19 outbreak devastating Chinese industrial output and reducing sales in the world’s largest car market by up to 80 per cent, some would argue that Germany’s export dependent economy will suffer regardless of any action undertaken by its leaders.
European leaders and central banks are by no means alone in their desire to counteract the effect of coronavirus through fiscal stimulus. Despite the first confirmed case in New York, the Dow Jones, Nasdaq and S&P 500 closed up 5.09, 4.49 and 4.60 per cent respectively, after the Federal Reserve affirmed its readiness to intervene.
