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Europe grinds to halt as ECB is criticized for too little action

  • Ania Nussbaum, Alessandro Speciale and Patrick Donahue

    Bloomberg

Paris/Rome/Berlin   /   Fri, March 13, 2020   /   08:34 am
Europe grinds to halt as ECB is criticized for too little action A cargo barge sails on the Main River as skyscrapers stand illuminated in the financial district beyond in Frankfurt, Germany, on Thursday.France and Italy took a rare swipe at the European Central Bank after efforts to contain the fallout from the coronavirus pandemic failed to calm jittery markets and only deepened the rout. (Bloomberg/Jasper Juinen)

France and Italy took a rare swipe at the European Central Bank after efforts to contain the fallout from the coronavirus pandemic failed to calm jittery markets and only deepened the rout.

President Emmanuel Macron was joined by Italian officials in saying that an ECB stimulus package announced earlier in the day falls short of tackling the unfolding crisis. The virus has infected more than 17,000 people in Europe and killed in excess of 1,000 in Italy, the epicenter of the outbreak.

“The ECB today shared its first decisions,” Macron said in a national address from the Elysee Palace. “Will they be enough? I don’t think so.”

His thinly veiled rebuke was echoed by Italian Prime Minister Giuseppe Conte, who said the task of the ECB is “not hindering but facilitating” and that the institution needs to create “favorable financial conditions.”

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The leaders’ criticism came as they announced a fresh set of measures to fortify their countries against the spreading virus. Schools in France will remain shuttered indefinitely, alongside nurseries and universities. Rome’s diocese announced all churches would suspend service until April 3, blocking off another artery of public life and social interaction in the crippled country.

Key event

While the region’s leaders have vowed to collaborate, measures taken in recent days still vary. In Germany and the UK, schools remain open, though both Chancellor Angela Merkel and Prime Minister Boris Johnson said this might change as the disease spreads. Social gatherings should be avoided outright, Merkel said in Berlin on Thursday evening, while Johnson urged the frail and elderly to remain at home.

“This is a key event that tests our resolve,” Merkel said. “We have to be prepared for the fact that this infection can’t be held up in any region.”

The focus of the coronavirus epidemic that originated in China last year has shifted to Europe, where governments and institutions are still struggling to identify the right tools to stem the outbreak and ensuing financial meltdown. European stocks tumbled the most on record on Thursday after the ECB held off on cutting interest rates, charting a different path from the US Federal Reserve and the Bank of England, which have both lowered borrowing costs.

Using ammunition

Commenting on diverging bond prices, ECB President Christine Lagarde said “we are not here to close spreads, this is not the function or the mission of the ECB.”

Instead, it’s the role of governments to be on the front line delivering fiscal stimulus to respond to the crisis, earning her a stinging rebuke from politicians in Italy and France.

Italian Development Minister Stefano Patuanelli said Lagarde’s words were an “accident” that sparked the biggest loss on record for Milan’s stock exchange. Italian President Sergio Mattarella, departing from his largely ceremonial role, said his country “rightly expects, at least in consideration of the common interest, initiatives of solidarity rather than moves that may hinder its action.”

Lagarde, who took office in November, later said in an interview with CNBC that she is “fully committed to avoid any fragmentation in a difficult moment for the euro area” and that the ECB would “use all the flexibility embedded in our asset purchase program.” A spokesman for the Frankfurt-based central bank declined to comment further.

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ECB governing member Klaas Knot said that as long as the virus isn’t under control, the ECB cannot bring back trust to the market. If the institution would have believed a rate cut was the right response, it would have acted accordingly, he said.

“It’s better that we save this kind of ammunition until the moment we can use it,” Knott said on Dutch television.

Travel ban

Unlike in the US, where Fed Chairman Jerome Powell has become a regular target for President Donald Trump’s demands to cut rates, governments in Europe seldom comment on the central bank’s policy, and even less so to offer criticism of the fiercely independent institution.

The discord over the ECB highlights how governments and institutions are struggling to speak with a unified voice, despite all avowals that they can only fight the virus with a concerted effort. Adding to the sense of dislocation was Trump’s decision late on Wednesday to impose a ban on many Europeans entering the US to contain a disease he labeled a “foreign virus.” The UK, where officials said on Thursday that as many as 10,000 Britons may be infected, remains exempt from the blockade.

In a jab at the US measures, Macron said “division won’t allow us to tackle what today is a global crisis,” instead calling for resolve and “our ability to act together.” The French president said he would speak to Trump on Friday to discuss measures that the G7 group of large economies can jointly take.

No kissing

Cases in France have reached about 2,900, still far short of the 15,113 infections in Italy. German cases climbed to 2,369, with southern Germany and North-Rhine Westphalia, the country’s most populous federal state, particularly affected. There have been five reported fatalities so far, according to the Robert Koch Institute.

School closures have become a prevalent feature across Europe, enacted in countries from Portugal to Ireland to Denmark, where the number of confirmed cases has spiked to over 500, a 10-fold increase within the span of just three days.

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Merkel said additional economic measures, including shorter, more flexible working hours, will be announced on Friday. The government has enough leeway to reconsider its pledge for a balanced budget, should extraordinary circumstances demand it. The chancellor warned that the outbreak will leave “deep marks” in the economy -- industries like travel, banking and hospitality have been particularly hard hit, as people stay at home and flight restrictions cascade around the globe.

Still, the worst may lie ahead, with the UK government suggesting the peak of the outbreak could be in 10-14 weeks. And the true scale of the outbreak may be “much higher” than the 590 confirmed cases in the UK so far, officials said.

Given the severity, Macron appealed to his fellow citizens to dispense with a quintessentially French gesture: the ‘bise’ kisses on the cheeks to greet another person.

“I count on you,” Macron said. “Because the government can’t do everything by itself.”


If you want to help in the fight against COVID-19, we have compiled an up-to-date list of community initiatives designed to aid medical workers and low-income people in this article. Link: [UPDATED] Anti-COVID-19 initiatives: Helping Indonesia fight the outbreak