Central European bank offers aid
Incentives push lenders to keep funds flowing through crisis
The European Central Bank is stepping up its efforts to cushion the economy against a record downturn that the bank’s president, Christine Lagarde, said was “of a magnitude and speed that are unprecedented in peacetime.”
The monetary authority for the 19 countries that use the euro currency on Thursday lowered the interest rate on the cheap, long-term loans it provides to banks. It also offered a raft of new credit lines to banks at a negative interest rate, meaning banks get paid a bonus as an incentive to borrow and lend.
The idea is to support banks so they can keep lending to businesses, thereby helping the economy, which contracted by a record 3.8% in the first three months of the year from the quarter before, according to new official figures.
That decline is the biggest since statistics started being kept in 1995 and worse than the drop in 2009 during the Great Recession that followed the collapse of U.S. investment bank Lehman Brothers.
“Measures to contain the spread of the coronavirus, COVID-19, have largely halted economic activity in all the countries of the euro area and across the globe,” Lagarde said after a tele-meeting among members of the ECB’s rate-setting council.
While Europe’s economic activity is plunging amid the shutdowns that idled everything from florists to factories, the labor market is holding up thanks to generous government support. Unemployment rose only slightly in March, to 7.4% from 7.3% in February, statistics agency Eurostat said. Millions of workers are being supported by temporary short-hours programs under which governments pay most of their salaries in return for companies agreeing not to lay people off. U.S. unemployment rose to 4.4% in March from 3.5% in February, though the eventual picture is likely far worse.