Risk of 'dramatic depression' if policy makers fall short: Former ECB president
A former head of the European Central Bank is throwing support behind policymakers racing to contain the COVID-19 outbreak’s impact, and warning of a potential economic depression if fiscal and monetary leaders fail to act with force.
“To avoid a dramatic depression is absolutely necessary,” Jean-Claude Trichet, who is also a former governor of the Bank of France, told BNN Bloomberg’s Amanda Lang Tuesday. “What is being done now is absolutely necessary, in my opinion. The problem, of course, is whether we will be able to have the economy start again as soon as the pandemic is over.”
Trichet, who served as ECB president from 2003-2011, said policies like partial employment will be integral in helping the global economy eventually get back on its feet.
“I think we should not underestimate the necessity to avoid a great depression,” he said.
Central banks around the world have stepped up in recent days to help ease the financial consequences as pockets of the world shut down amid the growing health crisis. The U.S. Federal Reserve stole the spotlight Monday when it introduced a second wave of intervention by pledging to buy an unlimited amount of Treasuries and mortgage-backed securities in an effort to keep credit markets afloat.
However, Trichet said the level of global coordination wasn’t as strong at the onset compared with past financial crises.
“All we are now doing, which is so powerful in my opinion, is to avoid a great depression, but we will have a terrible recession,” Trichet added, pointing to the latest Purchasing Managers’ Index (PMI) data in the United States, which showed a steep contraction in the services and manufacturing sectors.
“We are in a situation where the freefall of the economy is clear,” he said. “We must stand ready to start up again immediately after the virus is surmounted.”