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Europe Faces Biggest Shock Since Financial Crisis, and It’s Too Late to Stop it

Europe Faces Biggest Shock Since Financial Crisis, and It’s Too Late to Stop it
  • According to ECB head Christine Lagarde, the European Union faces its most severe economic shock since the financial crisis as coronavirus spreads across the continent.
  • European leaders are scrambling to contain the situation, but their efforts are too little, too late.
  • German Chancellor Angela Merkel admits the situation is out of control. She predicts coronavirus could infect 60-70% of Germans – even as the death rate tops 6% in Italy.

As the situation in Asia seems to be coming under control, Europe is turning into the second major epicenter of the deadly Wuhan coronavirus. So far the virus has established itself all over Europe with major hot spots developing in Northern Italy, France, Spain and Germany.

The hardest-hit countries represent Europe’s major population centers, responsible for much of the economic activity on the continent.

As European policymakers take drastic steps to rein in the impacts of the rapidly-spreading disease, the European Central Bank (ECB) warns of the negative impact this crisis could have on the economy. But with German leaders predicting that the virus will eventually infect most of their population, it’s clearly too late to avert the economic catastrophe.

Coronavirus Makes Europe its Second Home

Europe has become the most coronavirus-hit area outside of East Asia. | source John Hopkins

Despite originating in Wuhan China, coronavirus is rapidly becoming a European disease. Major outbreaks have developed in virtually every single European country with Italy becoming the hardest-hit nation outside of China.

The five hardest-hit European nations are as follows:

  • Italy: 10,149 cases and 631 fatalities
  • France: 1,784 cases and 33 fatalities
  • Spain: 1,736 cases and 37 fatalities
  • Germany: 1613 cases and 2 fatalities

The fatality rate in Italy has hit a staggering 6.21% compared to just under 2% in Spain and France – and a flu-like death rate of only 0.12% in Germany.

Angela Merkel better hope Germany maintains its abnormally low death rate because she is basically admitting that the virus will spread out of control in the country. At a meeting with parliament, she informed the shocked assembly that 60-70% of the German population could eventually contract the coronavirus.

With a fatality rate of 0.12% that would be 59,000 dead Germans. With Italy’s 6% fatality rate, that number jumps to a staggering 3.08 million.

ECB Warns of Economic Catastrophe

Central Bank President Christine Lagarde during happier times. | Image: Shutterstock

Christine Lagarde, president of the European Central Bank, believes the coronavirus could shock Europe’s economy as badly as the financial crisis of 2007. At a conference call with European Union leaders, she informed them that the Bank will take steps as soon as this week.

The Irish Times quotes her as saying:

Failure to act boldly now would raise the risk of the collapse of part of your economies

But while bold government action will save lives as slow the spread of coronavirus in Europe, it probably won’t be able to avert the looming financial catastrophe. That’s because tactics like travel restrictions and quarantines keep people at home and slow economic activity.

The European economic landscape was already in trouble – even before the coronavirus.

February data revealed that German industrial production fell for the fifth time in seven months. And the German economy is only expected to grow 0.4% in 2020. The coronavirus could easily tip Germany’s already anemic growth into contraction territory – especially if the disease infects 60-70% of the country’s population as Angela Merkel predicts.

ECB Expected to Stimulate Europe’s Economy

Despite the writing on the wall for a European recession, most analysts expect Lagarde’s ECB to stimulate the economy through monetary policy. But with interest rates already at -0.5%, the Bank’s options are limited.

European policymakers will have to rely on fiscal stimuli like tax breaks and other incentives to soften the blow of the inevitable coronavirus recession – but its too late to stop it.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Sam Bourgi.

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