The U.K. this week joins Germany and France in the club of countries forced into national lockdowns by the coronavirus second spike. With their fiscal and monetary power depleted in the spring by the initial wave, the focus of policy makers is now turning to the COVID-19 resurgence’s economic cost.
- The Bank of England will meet on Thursday amid expectations that it will increase its asset buying program, which would help the government devote more fiscal resources to counter the economic consequences of the new restrictions. That is after the European Central Bank indicated last week that it will take new measures in December.
- U.K. Chancellor of the Exchequer Rishi Sunak said on Saturday that the U.K. government would extend a furlough program of job subsidies, due to expire that day, until the end of the year, to help companies weather the new lockdown, which involves the closure of all “nonessential” retail businesses.
- The Italian government is reported to be considering a 9 p.m. national curfew and a ban on interregional travel. The country’s health minister said on Sunday new data about the spread of the disease were “terrifying,” and that new restrictions would have to be taken “within 48 hours.”
- Goldman Sachs on Monday slashed its economist forecast for Europe. The bank’s analysts now see eurozone gross domestic product to shrink 2.3% in the last quarter of the year, compared with their previous prediction of a 2.2% expansion.
The outlook: Europe seems to be gradually veering toward overt financing of budget deficits by central banks, official denials notwithstanding. There are many reasons for this: Governments are beginning to worry about the public debt load — now at more than 95% of GDP in the eurozone, and more than 100% in the U.K. — after a major increase due to the spending devoted to cushion the first wave of the pandemic.
As for lowering interest rates — the other traditional central bank tool — it would be of little interest to businesses that aren’t eager to take on more leverage, considering the uncertainties piling up on their horizon. So, in the next few months, the rule may well be that governments keep borrowing, and central banks keep lending.