(CN) – Besides the danger of killing many more people across Europe, the novel coronavirus outbreak is threatening to bring about a global recession that could hit the continent hard with falling demand for its exports, a dearth of tourists and a rash of bankruptcies and layoffs.
Europe is looking at warding off a catastrophic recession with an infusion of spending even if that means piling up more debt on top of already high debt levels.
On Thursday, the European Union was considering scrapping fiscal rules that prevent member states from running up debts. Those rules were imposed after the bloc was devastated by a debt crisis following the 2008 financial meltdown.
Several European states, most significantly Italy, are struggling to rein in extremely high public debts. Now Germany and other solvent European countries are coming under pressure to open up their purse strings to help the EU overcome this crisis.
Also Thursday, the European Central Bank stepped in to provide relief. The ECB announced a $133 billion stimulus package and other measures to keep credit flowing and businesses and households afloat. But it did not lower its historically low interest rates to the disappointment of some.
The ECB's measures, though, did not calm investors and may have even helped drive European stocks down in a massive sell-off initially sparked by U.S. President Donald Trump's Oval Office address on Wednesday night announcing flights from Europe would be stopped. Italy's stock market fell by 17% and other stock exchanges in Europe lost about 12% in value. These losses were the worst ever for Europe's stock markets.
The ECB's $133 billion plan involves boosting its monetary policy to buy government bonds and other assets, known as quantitative easing, to inject liquidity into the economy. It also announced a fresh program of preferential loans to encourage bank lending to small businesses.
Christine Lagarde, the ECB president, said the outbreak will cause a major shock to Europe's economy, though she was optimistic the downturn will be short-lived. The bank forecasts the economy will pick up in the second half of the year.
“I think it is clear to all of us that the economies of the world and certainly the economies of the euro zone are clearly facing a shock,” she said at a news conference at the ECB headquarters in Frankfurt, Germany.
But she said the euro zone would likely recover by the summer.
“We regard the current shock as severe, but still temporary if the right set of policy measures are decided by all players,” she said.
The threat of a recession may depend on what happens with the coronavirus, known as COVID-19, and whether it can be contained quickly. Europe is racing to fight the virus, which has continued to spread at alarming rates in Italy, France, Spain, Germany and the United Kingdom, the largest European economies.
On Thursday, Italy reported its worst day yet with 2,249 new confirmed cases and 189 new deaths, bringing the total number of deaths to 1,016 and the total number of infections to 15,113. Of those infected, 1,258 have recovered while 1,153 are in intensive care, Italian authorities say.
So far, Italy has said it plans to spend $27 billion to handle the crisis and help those hurt economically by a nationwide quarantine that's closed many businesses. Italy also is suspending mortgage payments and its banks are ready to offer debt holidays.