FRANKFURT, March 18 (Xinhua) -- The coronavirus crisis is attacking the eurozone as a whole and the bloc needs to make sure that it identifies the necessary means at eurozone level to address the economic fallout, a German economist has said.
The policy package announced by the European Central Bank (ECB) on Thursday is "definitely an important step forward, and won't be the last step," Sascha Steffen, professor of finance at the Frankfurt School of Finance and Management, said in an interview with Xinhua on Tuesday.
The ECB's stimulus from last week includes a temporary envelope of additional net asset purchases of 120 billion euros (130 billion U.S. dollars) and longer-term refinancing operations. Alongside the central bank, the European Union's banking watchdog said it will provide temporary capital and operational relief for banks and delay this year's bank stress tests.
Steffen said that interest rates in the eurozone were at a point where they shouldn't go any lower because that would actually hurt the banks, but there are substantial funds that the ECB can deploy.
"The success of the ECB and the way they use the funds depend a lot on the fiscal actions that different governments are taking in the eurozone," he explained.
"The eurozone members have not clearly defined what they are going to do, but there is going to be some coordinated action on the eurozone level," he said.
In a recent written comment co-authored with Moritz Schularick from the University of Bonn, Steffen and Schularick called the current crisis "an economic crisis that could turn into a financial crisis," which is different from the 2008 financial crisis that originated in the banking system and in the over-leveraged household sector.
"The virus and the unprecedented response governments are taking to contain its spread has an immediate impact on the real economy through the simultaneous occurrence of both demand and supply shocks," they wrote.
"The risk of a global recession is not only very high, for some countries the recession is already there," Steffen told Xinhua, adding that "all the countries are taking drastic steps to reduce the fallout."
It is now not only important to make sure that sufficient funds are available, but that the funds could quickly reach the people on the street, the households and businesses that are being affected, he stressed.
Specifically, to help eurozone banks weather the crisis, Steffen and Schularick suggest that the European Stability Mechanism (ESM) be the main vehicle to provide the protective shield for all eurozone banks, and argue that an increased amount of recapitalization fund should help banks in trouble.
According to Steffen and Schularick, amid the recent market turmoil, the share prices of eurozone banks dropped by 40 percent to 50 percent.
Furthermore, the eurozone is facing "historic levels" of corporate leverage funded largely by non-bank financial institutions, and the behavior of these investors during crises remains untested, they warned. Enditem
