In order to aid Eurozone economies crippled by the coronavirus (COVID-19) pandemic, the European Central Bank (ECB) has announced a new loan program with negative 1% interest rates, cutting the cost of funding for banks. The negative rates offer an incentive for banks to borrow and lend money. The loan program follows a recorded economic contraction of 3.8%, the worst three-month contraction in 25 years. The ECB also urged politicians to provide more fiscal support, warning that the eurozone could shrink by as much as 12% this year.
Some European countries hardest hit by the pandemic, including Italy, Spain, and France, have experienced contractions of around 5% during the first quarter of 2020. The eurozone’s most vulnerable countries are calling for a greater joint fiscal response, however, most government action has been at the national level thus far. During a virtual press conference on April 30, 2020, President of the ECB Christine Lagarde warned that “An ambitious and coordinated fiscal stance is critical, in view of the sharp contraction.”
