Skip to main content
//empty //empty
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub

A television broadcast showing Christine Lagarde, president of the European Central Bank (ECB), is pictured during a trading session at Frankfurt's stock exchange in Frankfurt, Germany, on March 12, 2020.

RALPH ORLOWSKI/Reuters

The plunging markets of Thursday proved what everyone already knew. Central banks are running out of ammunition and can’t do much to prevent an economic downturn. It’s every country for itself as the novel coronavirus smashes its way through one economy after another.

Christine Lagarde, the new president of the European Central Bank who replaced Mario Draghi last November, pretty much said as much on Thursday when the ECB launched an apparently underwhelming response to the economic damage unleashed by the virus and its resulting COVID-19 disease.

Even as she was speaking, the European (and North American) markets were plunging. Almost all the major stock indexes were down about 9 per cent, with some indexes falling more than in the 2008 financial crisis. President Donald Trump’s European travel ban, and the relentless spread of COVID-19 through Europe, could take some of the blame for the wreckage.

Story continues below advertisement

The yields of the 10-year bonds of Italy, the epicentre of the European COVID-19 infections, soared (bond prices and yields go in opposite direction), raising the borrowing costs of the EU country that can least afford it. “We are not here to close [bond] spreads, that’s not the function of the ECB,” Ms. Lagarde said, leaving economists wondering exactly what the ECB’s job is if not to stabilize the debt markets.

Hers was not a whatever-it-takes moment. There has only been one such moment in recent ECB history. It came in 2012, when the financial system and national debt crises were conspiring to burn down the euro zone. Mr. Draghi promised to do “whatever it takes” to save the economy. He used a series of radical emergency measures, which would include quantitative easing – the mass buying of government bonds – to snuff out the flames. It’s no exaggeration to say he saved the euro from destruction.

To investors’ surprise, the ECB did not cut interest rates Thursday, setting it apart from the central bank pack. Since last week, the Bank of England, the Bank of Canada and the U.S. Federal Reserve each cut rates by a hefty half a percentage point. The ECB left its base rate intact, at negative 0.5 per cent. It seems the ECB reasoned that pushing rates further into negative territory would do nothing to cure the supply shock brought on by the coronavirus crisis, or make the banks any healthier; banks hate negative rates.

The ECB did help the banks boost their liquidity in an effort to support the supply of credit to the economy. It is launching a new program of cheap longer-term loans for banks and sweetened another bank-loan package that will be offered for as little as minus 0.75 per cent – below the ECB’s deposit rate.

The ECB also ramped up its quantitative easing program, which will now see monthly bond purchases, including corporate bonds, of €33-billion ($51.4-billion), up from €20-billion. The higher purchases will help government financing operations, although a bigger program would have been more effective. Remember, central banks can’t go broke. They alone issue currencies and can buy as many bonds as they wish.

The overall stimulus package clearly wasn’t enough to slow the market sell-off or contain the unfolding economic damage. To be fair, there wasn’t more the ECB could do, other than boost the quantitative easing program more than it did. That option is still on the table.

The ECB’s message was: We’re almost tapped out, over to you finance ministers.

Story continues below advertisement

Ms. Lagarde pleaded for governments to get their acts together to launch “ambitious and co-ordinated” fiscal stimulus packages to prevent the economy from barreling into recession (Germany and Italy were on the verge of recession even before anyone had heard of COVID-19).

Mr. Draghi would also beg governments to smarten up, to little avail. During most of his years at the ECB, from 2011 to 2019, governments did little to make their economies more competitive and were obsessed with austerity, a policy that would prove disastrous. It made the poor poorer, stoked the rise of populist leaders and eroded public services, such as hospital care. While the worst of austerity is over, it still lingers, especially in Germany, whose spending programs are allergic to deficits.

The postcrisis years turned the European political map on its head as governments everywhere were voted out of office by angry voters, hollowing out the traditional centre-right and centre-left parties. Unless governments pull together on the fiscal front, mass anger could return.

Ms. Lagarde could have injected a little more brio into her stimulus package on Thursday, but not much more. She’s right. The ECB saved Europe eight years ago. It doesn’t have the power to do it again. Over to governments.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies