Recession Ahead? Between Coronavirus and Brexit, Europe Might Be in Trouble
March 8, 2020 Topic: Economics Region: Europe Blog Brand: The Buzz Tags: EurozoneEuroEuropean UnionRecessionCoronavirusBrexit

Recession Ahead? Between Coronavirus and Brexit, Europe Might Be in Trouble

What will the ECB do?


The European Central Bank (ECB) will support this position, as the institution has repeatedly said that monetary policy alone is not enough to boost growth and that countries should do their part through fiscal policy. The ECB will probably continue with sub-zero interest rates and its bond-buying quantitative easing program. But with interest rates already negative and only a few sovereign bonds left to purchase, the ECB is running out of ways to boost growth. In the coming months, the ECB will consider increasing its purchases of "green" bonds, or debt used to finance environmentally-friendly projects. This idea, however, will be problematic from both a technical point of view (the issuance of green bonds is relatively low compared to other types of bonds), as well as a political point of view (the head of Germany's central bank has said that governments, and not the ECB, should be in charge of the fight against climate change).

2020 will still be far from a crisis year in the eurozone, given that most countries in the currency area will still see modest growth. But with the three largest economies in the bloc (Germany, France and Italy) slowing down amid significant headwinds from the United Kingdom, China and the United States, the long economic recovery that followed the financial crisis of the early 2010s is losing steam. Fiscal expansion could help boost growth, but the eurozone countries that support the idea lack the economic capacity to do so, with Italy being the clearest example. And the countries that aren't as constrained, namely Germany, are ideologically opposed to such increases in government spending. A coordinated effort among the 19 countries of the eurozone to boost growth thus seems improbable. Instead, the currency area will likely opt for piecemeal reactions to the slowdown, which will reduce their effectiveness.


The Eurozone Braces for a Rocky Year is republished with the permission of Stratfor Worldview, a geopolitical intelligence and advisory firm.

Image: Reuters.