EU feud threatens to erupt over coronavirus as eurozone expected to PLUMMET by 15%

The warning comes from Dr Kerstin Braun, President of Stenn Group, a global trade finance provider, who claimed the coronavirus crisis will exacerbate disagreements between member states in the eurozone. She said: “Like the Bank of England and the US Federal Reserve, the European Central Bank has taken unprecedented emergency actions to protect economies and markets amidst the Covid-19 pandemic.

“Their actions have calmed nerves and steadied financial markets. Christine Lagarde should be applauded for stepping up at a time when politicians hesitate over fiscal relief.

“Crises can exacerbate family squabbles, and the EU is not immune to disagreement over the extent of the ECB’s actions.

“With the Eurozone expected to shrink by as much as 15 percent this year, ECB asset purchases could top €1 trillion, potentially crossing a thorny threshold regarding the amount of debt it can take on from each nation.

“Even so, this amount, along with the €500 million pledge by governments for business and household liquidity, probably won’t be enough to stop the economic damage from the pandemic.

“Getting more relief will undoubtedly cause a familiar family feud between the rich and poor country members.

“However, letting the weaker economies implode would be much worse for the EU in the long run.”

The coronavirus pandemic has sent the eurozone’s economy into an “unprecedented decline” that is likely to steepen before a recovery phase kicks in, ECB President Christine Lagarde said on Thursday.

The trend pointed to “rapidly deteriorating labour markets” and “a significant contraction in economic activity” during the period of the pandemic, whose duration could not yet be determined.

ECB staff projections suggested euro area GDP could fall by between 5 and 12 percent this year, she told the bank’s post-policy meeting news conference.

The ECB kept much of its remaining powder dry on Thursday, reaffirming its already vast bond purchase scheme but holding back on any big policy move as it is already hoovering up debt at a record pace.

Just weeks after unveiling its biggest stimulus scheme to date, the ECB said it would buy 1.1 trillion euros of debt this year and kept the door open to even more as the euro zone economy is shrinking faster than already depressed expectations.

The bank said it would lower interest rates on its long term loan for banks to as little as minus 1 percent and launch a new loan scheme called Pandemic Emergency Longer-Term Refinancing Operations or PELTROs.

But it did not change its asset purchase programmes, including its new Pandemic Emergency Purchase Programme, also known as PEPP.

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“The Governing Council is fully prepared to increase the size of the PEPP and adjust its composition, by as much as necessary and for as long as needed,” the ECB said.

“In any case, it stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”

With much of Europe locked down indefinitely to contain the coronavirus pandemic, the 19-country currency bloc’s economy could shrink by 10 percent this year. Governments are borrowing record amounts to keep firms afloat until restrictions are lifted.

The ECB is unlikely to stay on the sidelines for long as it is on track to exhaust its current bond purchase quota by autumn and jittery financial markets are demanding a further show of commitment.

But having acted early, the ECB can afford to wait now and keep some pressure on Europe’s political leaders, who have so far fumbled a fiscal response, leaving the ECB in a familiar role as the currency union’s chief crisis fighter.

By the ECB’s next regular meeting on June 4, the outlines of a broadly agreed deal on a 1 trillion euro reconstruction fund should also be clearer, making it easier for the central bank to do its part.

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