Panic erupted across Europe yesterday as the price of oil tumbled in response to a dispute between Russia and Saudi Arabia over production cuts and Italian officials announced the whole country was to be placed under lockdown to help curb the spread of coronavirus, formally known as Covid-19. Stock markets plummeted across Asia and Europe, with the DAX, Germany’s blue-chip stock index dropping a whopping eight percent – it’s worst one-day decline since the 9/11 terror attacks. But experts have warned yesterday’s financial panic could be just the start, as the continent is headed towards a geopolitical crisis.
Germany, Europe’s economic engine, could soon face financial problems as a result of the outbreak, Politico reports.
About half of Germany’s 1,200 confirmed cases are located in the state of North Rhine-Westphalia, Germany’s industrial heartland which accounts for more than 20 percent of the country’s economic output.
Economist Clemens Fuest has said warned Germany “will face insolvency due to the crisis”.
He told German broadcast SWR in Germany there is “hardly a company that does not feel the corona crisis”.
The coalition government agreed a series of emergency measures on Sunday to cushion the economic impact of the virus.
This included plans to allow easier access to financing for companies, credit guarantees and tax relief.
Chancellor Angela Merkel said: “We’re keeping an eye on the German and European economies.”
But Germany faces a second problem, as the country is largely reliant on exports.
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The country’s two biggest export partners outside of Europe, the US and China, are currently struggling to bring the outbreak under control.
German Finance Minister Olaf Scholz said it was too early to determine the economic fallout caused by the virus.
He said: “The markets are simply reflecting the broader insecurities.
“At this point, no prediction can really be taken seriously. That’s why clear, calm messages from the strong state are needed.”
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But Germany isn’t the only European country facing economic difficulties in the wake of the outbreak, as Italy, the bloc’s worst-hit country, asked the EU Parliament to approve €3.6billion (£3.1billion) in extra borrowing to help tackle the health emergency.
As of Tuesday, more than 9,000 people had tested positive for the virus in Italy, with the death toll surpassing 450.
France is also seeing a surge in cases, prompting Finance Minister Bruno Le Maire to warn the impact of the virus would be “severe” and called on Europe to stitch together a “massive” stimulus plan.
European Commission President Ursula von der Leyen has sought to reassure member states the EU is prepared for the situation to worsen and will consider providing financial aid.
She said the EU is ready to: “Use all the necessary and possible flexibilities for these exceptional circumstances.”
That flexibility includes allowing capitals to provide aid to companies, something currently prohibited under EU law.
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