European economists have not yet estimated the damage from the pandemic. However, it is obvious that the EU governments do not have enough money to cope with the economic consequences caused by the coronavirus. They will have to resort to large financial infusions as analysts expect the deepest economic slump since the Second World War.
In such moments, developed countries usually start printing money. Thus, the EU authorities are planning to pump new money into the economy. Banks have rushed to borrow a record €1.3 trillion from the European Central Bank at negative interest rates.
“The ECB is happy to provide the liquidity to the banks which pass it on to businesses and households,” said Florian Hense, an economist at Berenberg. It is the first time that a major central bank has offered multi-year loans to banks at an interest rate below its main deposit rate.
The EU hopes that this policy will help to soften the economic blow from the outbreak. The European Commission has already prepared for a slump of 7.4% at the end of the year. The ECB’s forecasts are even gloomier. According to the worst-case scenario, the EU economy may shrink by 12%. Thus, economists have nothing to do but to wait and see whether the large-scale stimulus package is able to support the economy.