Europe’s monetary and fiscal titans are finally moving in lockstep as a wave of German stimulus buttressing additional central-bank easing heralds the prospect of a new era of policy coordination in the region.
Those measures to aid the economic pickup from the coronavirus crisis, announced within half a day of each other in Berlin and Frankfurt, followed a groundbreaking shift toward creating a European recovery fund in Brussels supported by joint borrowing.
Germany needed to act “courageously and decisively,” Chancellor Angela Merkel told German broadcaster ARD in an interview late Thursday as she defended the government’s unprecedented spending spree. “Luckily in the good times we have acted in a way that enables us to do this now.”
Each initiative is already substantial, but combined they’re quite the show of force. They also suggest that Europe, which has long struggled to find common ground over economic policy, is more than ever exhibiting a sense of collective purpose.
“The shift in policy making at the European level has been tremendously significant,” said Neville Hill, chief European economist at Credit Suisse in London. “It’s not only capable of allowing the euro-area economy to recover well from the near-term crisis, but it does raise the prospect of a better, and a better-balanced, policy framework in the European Union once it’s recovered.”
At the center are two women who can draw on unique experience of prior financial market turmoil. Germany’s long-serving chancellor oversaw two days of tense negotiations to clinch a 130 billion-euro ($147 billion) stimulus push, after Merkel brought her government round to sharing its fiscal might to back the EU’s new borrowing tool.
Meanwhile, European Central Bank President Christine Lagarde, a former French finance minister and International Monetary Fund chief, has kept her institution at the forefront of crisis firefighting, while bluntly telling governments that it can’t do the job alone. Policy makers expanded bond purchases by 600 billion euros on Thursday, and could still add to that in future.
“The ECB is acting much more aggressively than it has ever done before, and so is the German government,” said Nick Kounis, an economist at ABN Amro in Amsterdam. “The policy response has been much more rapid and coordinated and focused compared to the global financial crisis.”Stimulus SalvoECB unveiled more easing action on T