Italy’s prime minister has demanded the EU use “the full firepower” of its €500bn rescue fund to confront the continent’s economic crisis, as he warned against relying on monetary policy to counter a “global shock that has no precedents”.
With coronavirus deaths in Italy overtaking those in China for the first time, Giuseppe Conte told the Financial Times it was time for the European Stability Mechanism to offer emergency credit lines to countries reeling from the pandemic.
“Monetary policy alone cannot solve all problems; we need to do the same on the fiscal front and, as I already mentioned, time is of the essence,” the Italian prime minister said. “The route to follow is to open ESM credit lines to all member states to help them fight the consequences of the Covid-19 epidemic, under the condition of full accountability by each member state on the way resources are spent.”
His call for Europe to tap the bailout fund it established for the eurozone debt crisis came as central banks around the world attempted to calm fearful markets with a fresh round of aggressive rate cuts and bond buying.
In the past 24 hours the European Central Bank has announced plans to buy an additional €750bn of bonds, the US Federal Reserve stepped in to shore up the dollar funding market, and the Bank of England cut interest rates to 0.1 per cent and flooded the government bond market with £200bn of printed money to shock it back to life.
So far, the combined efforts of central banks around the world has at best blunted the economic blow from the coronavirus pandemic, which has brought parts of the world economy to a standstill and sent the S&P 500 index of US shares tumbling almost 30 per cent in a month.
The latest central bank initiatives helped to calm markets on Thursday after a brutal week of trading. The S&P 500 was up 0.8 per cent after falling 3 per cent when markets opened, while the Europe-wide Stoxx 600 composite gained more than 2 per cent.
The new Bank of England governor, Andrew Bailey, said the volatile markets were “bordering on disorderly” during “an absolutely unprecedented situation”. Earlier this week he had said markets would need to be shut if they became disorderly.
He also echoed the call from former central bankers from the 2008-09 crisis that the amount of government borrowing required was likely to be so huge in coming months that even more drastic action was needed.
Christine Lagarde, ECB president, called her fellow rate-setting officials into an emergency session on Wednesday evening to hugely increase the size and scope of its action, just a week after the bank announced its initial response to the crisis.
The central bank is committing to buy €750bn more bonds by the end of this year — on top of the extra €120bn it promised to purchase last week and the €20bn a month it was already planning to acquire.
Ms Lagarde wrote in the Financial Times that the expanded plan “underlines the ECB’s commitment to play its role in supporting every citizen of the euro area through this extremely challenging time”.
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The Federal Reserve on Thursday took the latest in a series of moves this week to shore up liquidity around the world by broadening the swap lines it set up to boost US dollar funding markets to additional countries, from Brazil, Mexico and Australia to Denmark, Norway and Sweden.
The Fed had already set up similar swap lines with the ECB, the Bank of Japan and the Bank of England on Sunday. The move was intended to help central bankers deal with the financial stress from the sharp rise in the dollar, the world’s reserve currency.
In less than five days, the Fed has also slashed its main interest to near zero, announced $700bn in asset purchases and revived three big lending facilities designed to shore up credit markets that it had originally designed and used during the 2008 financial crisis, in a bid to boost liquidity.
A run into the US dollar continued to ripple across markets on Thursday. The dollar index, which measures the world’s reserve currency against a basket of peers, jumped as much as 1.5 per cent and was trading at its highest levels in three years.
The number of Italians who have lost their lives in the coronavirus outbreak has overtaken the toll in China, with 427 dying in the past 24 hours to take the total to 3,405. In China 3,242 deaths have been registered, according to the World Health Organization.
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