Lagarde tells EU leaders GDP may fall up to 15% on Coronavirus

[BRUSSELS] European Central Bank President Christine Lagarde told EU leaders that the euro area's gross domestic product could fall by as much as 15 per cent as a result of the pandemic, and that they risk doing too little, too late, according to three people familiar with the remarks.

Ms Lagarde spoke during a video conference meeting of the European Union's 27 heads of government, who are discussing how to mitigate the economic fallout of the virus.

One of the officials, who asked not to be identified because the deliberations are private, said that a 15 per cent recession is the extreme scenario singled out by Ms Lagarde, with the ECB president saying her baseline estimate is a 9 per cent cut in output this year.

With more than 100,000 fatalities in the region, Europe has been hard hit by Covid-19 and the fallout from the crisis is tearing at the fabric that holds the group of nations together. Strict lockdowns have shuttered factories and halted travel, pitching the trading bloc into the worst recession in living memory.

The European Commission, the bloc's executive arm, has floated a US$2.2 trillion plan for economic recovery that would rely heavily on the EU's budget, according to a draft copy of the proposal obtained by Bloomberg. This plan would include the Commission borrowing 320 billion euros(S$492.7 billion) on the capital markets and then channeling the proceeds to member states hit the worst.

France, Spain and Italy have called for the EU to introduce joint debt sales but governments such as Germany and the Netherlands have rejected so-called coronabonds over fear that they'd be stuck with the bill. There is also disagreement over who how to share the costs of the recovery, and under what terms the pooled funds would be disbursed.

BLOOMBERG