Christine Lagarde reportedly warned coronavirus could cause the worst economic disaster since the financial crisis

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  • European governments and central banks must act quickly and collectively to counteract the economic costs of coronavirus, Christine Lagarde said on Tuesday, according to Bloomberg.
  • If they fail to act, the continent “will see a scenario that will remind many of us of the 2008 Great Financial Crisis,” the European Central Bank president warned on a conference call with European leaders.
  • Lagarde said that European policymakers are weighing options such as “super-cheap funding” and boosting liquidity and credit, Bloomberg reported.
  • She told the leaders that they risk “the collapse of part of your economies” if they don’t take brave and decisive measures.
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European governments and central banks must mount a fast, coordinated response to the coronavirus epidemic or face devastating consequences, Christine Lagarde warned on a conference call on Tuesday, a person familiar with the European Central Bank president’s comments told Bloomberg.

Lagarde told European leaders that if they fail to act, the continent “will see a scenario that will remind many of us of the 2008 Great Financial Crisis.” However, the economic fallout will probably be temporary if appropriate measures are taken, she added.

Ahead of the ECB’s Thursday meeting, policymakers are weighing options such as “super-cheap funding” and boosting liquidity and credit, Lagarde said on the call. However, the central-bank boss cautioned that those types of measures will succeed only if governments work to shore up bank lending in vulnerable areas, Bloomberg said.

Lagarde told the European leaders that they risk “the collapse of part of your economies” if they don’t take urgent action, Bloomberg added.

“Much more than a monetary policy response”

The ECB is widely expected to follow the Federal Reserve, the Bank of England, and other central banks in cutting interest rates to counteract the economic impacts of coronavirus.

That may not be enough: Marchel Alexandrovich, Jefferies’ senior European economist, published a note titled “Lagarde’s turn to do ‘whatever it takes'” on Tuesday.

“An emergency of the sort facing the world economy requires much more than a monetary policy response,” Alexandrovich wrote.

He argued that the ECB should signal its willingness to take bold action in order to lift market sentiment, reduce borrowing costs for governments, consumers, and businesses, and lay the groundwork for recovery once the epidemic recedes.

Alexandrovich predicted Lagarde and her team would lower the deposit rate by 10 basis points to -0.6%, exempt a larger proportion of banks’ capital reserves from interest charges, and triple its asset purchases to 60 billion euros ($US68 billion) per month.