Where to next for the Eurozone

Covid19 EU Flag

Will the Coronavirus battle trigger a Eurozone war?

The economic and health impacts of coronavirus have not been distributed equally across the Eurozone. In particular, peripheral countries such as Italy have been hit hardest in human and economic terms. This has reopened old fault lines between member states about a shared fiscal policy to offset negative shocks, and once again placed a disproportionate burden on the European Central Bank (ECB) to provide policy support. This note assesses the Eurozone’s existing crisis-fighting tools, the policy steps that have already been taken in this crisis to cushion the blow to economies, the options remaining on the table, and alternative policy paths available for the Eurozone in the medium term.

Shots fired: What has been deployed in the coronavirus crisis so far?

Monetary Policy

ECB action has come in three stages. On March 12, the central bank announced a €120bn increase in its Quantitative Easing (QE) purchases over the rest of the year, which implied €15bn/month of additional purchases on top of the €20bn/month it was already doing. But at the same meeting, ECB President Christine Lagarde effectively bungled the communication of this easing by saying that the ECB was “not here to close spreads”, in turn triggering a sell-off in peripheral Eurozone debt.

View Full Article – published by Aberdeen Standard Investments on 1st June 2020