The European Central Bank announced new measures to try to stem the economic damage from the global coronavirus pandemic.

While it left interest rates unchanged, it expanded its bond-buying program by an additional $134 billion this year and will modify some of its lending programs in response to the crisis.


The outbreak has shaken European markets, restricted travel, and slowed commerce. Under pressure to respond, the ECB announced the measures at the close of its two-day meeting at its Frankfurt headquarters.

"An ambitious and coordinated fiscal policy response is required to support businesses and workers at risk," said the bank's president Christine Lagarde. 

"The Governing Council strongly supports the commitment of euro area governments and the European institutions to joint and coordinated policy action in response to the repercussions of the spread of the coronavirus."


The new measures are designed to shore up lending to local banks through the central bank’s longer-term refinancing operations programs. 

That could help counter the economic impact of the virus in hard-hit regions such as Italy. Both the U.S. Federal Reserve and the Bank of England this week cut interest rates in response to the spread of the virus.

But while the ECB's announcement is expected to have an impact, its policy-making tools are seen as limited compared with banks such as the U.S. Federal Reserve. Europe's central bank has repeatedly cut interest rates since the financial crisis of 2008 and some of those rates are below zero.

There are already concerns, especially in Europe's largest economy, Germany, about the ECB's existing stimulus measures – particularly its massive bond-buying program.


"Before the coronavirus, there was already a discussion about the negative side effects of this very loose monetary policy," said Joerg Kraemer, chief economist at Commerzbank. 

"Therefore I think measures of the ECB are more symbolic," he added. 


While the ECB revised its eurozone growth forecast for the year down to 0.8 percent, from 1.1 percent, given the circumstances, there are still hopes that the underlying fundamentals are on a solid footing.


"I think we go through a difficult period of half a year and after the economy should recover and return to the old growth path," Kraemer said.


But with the virus spreading rapidly, and now the U.S. ban on most travel from Europe, the situation is highly uncertain. The global health crisis threatens to turn into a full-blown financial crisis.