The Atlanta Journal-Constitution
Facing recession, Europe grasps for ways to limit damage
FRANKFURT, GERMANY — Suddenly staring recession in the face, European leaders are lining up an array of tax breaks, financial support for companies and likely central bank measures in the hope of preventing the coronavirus outbreak from dealing long-term damage to the economy.
Expectations have grown that European Central Bank officials will announce more monetary stimulus when they meet today, after the Bank of England acted Wednesday and the U.S. Federal Reserve last week.
The European Commission plans to set up a $28 billion investment fund to support the health care system, businesses and labor market measures. The Italian government is offering an aid package of about the same size.
Yet any such actions will likely be more damage limitation than cure.
Monetary stimulus and government spending can spur demand for goods. But the coronavirus deals a shock from the supply side by closing businesses and making people stay home, highlighted by Italy’s dramatic decision this week to limit travel and public gatherings across the country. Lower interest rates or tax cuts cannot solve that.
Meanwhile, action to help the 19 countries that use the euro currency faces constraints from the lack of a large central treasury, a hurdle other large economies like the U.S. and China do not face.
“The world is facing a medical emergency that monetary and fiscal policy cannot fix,” said Holger Schmieding, chief economist at Berenberg private bank.