Report: Economy is the worst since WWII

FRANKFURT, GERMANY » Europe is in the midst of a downturn not seen since the end of World War II, and the worst is yet to come, the president of the European Central Bank said Thursday after the release of a barrage of dismal economic data.

“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” Christine Lagarde, the president of the central bank, said as she warned that the eurozone economy could shrink by as much as 12% this year.

In a bid to prevent another financial crisis, the bank’s Governing Council decided Thursday to effectively pay banks to lend money and vowed to do whatever was necessary to counteract the economic effect of the coronavirus.

Lagarde’s stark assessment of the economic impact of the coronavirus came after the European Union’s statistics agency estimated that economic output in the eurozone fell 3.8% in the first three months of the year, the region’s worst performance since the euro was introduced in 1999.

The French economy declined by 5.8%, Spain’s by 5.2% and Italy’s by 4.7%, their steepest downturns in the postwar period.

Under certain conditions the central bank will allow commercial banks in the eurozone to borrow at a rate of minus 1% provided the money is passed on to businesses and consumers. The negative interest rate means that banks could borrow up to 3 trillion euros ($3.3 trillion) without having to pay all of the money back.

In a statement Thursday, the ECB also said that it was prepared to further increase its purchases of government and corporate bonds, a form of money printing intended to keep market interest rates low and make it easier for businesses and consumers to get credit.

The central bank had previously earmarked more than 1 trillion euros for asset purchases. But the bank said Thursday it was prepared to raise that sum “as much as necessary and for as long as needed.”

“We are fully flexible and we will look at all options,” Lagarde said.