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How Europe can support its economy as the COVID-19 outbreak grows

The European Central Bank benchmark rate already sits at a record low of -0.5%. Thomas Lohnes/Getty Images

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Six weeks ago, the European Central Bank was optimistic about the eurozone economy thanks to improving business sentiment, recovering global trade and a de-escalation in U.S.-China trade tensions.

But that was before the COVID-19 outbreak.

Last week, the Federal Reserve stunned markets with an emergency half a percentage point rate cut, and central banks in Japan and the U.K. vowed to take part in a coordinated global effort to support financial markets and maintain economic stability.

On Thursday, the ECB will decide whether to commit to that promise, too.

But economists have warned there’s little scope for the central bank to act since its benchmark rate already sits at a record low of -0.5%.

Aside from further slashing rates into negative territory, investors say the bank could expand the asset purchase program it restarted last year, or provide new lending systems for small businesses hit by coronavirus disruption.

President Christine Lagarde has said the ECB is “ready to take appropriate and targeted measures” to address the crisis. She just may need to dig deeper in her monetary policy toolbox to find the right recession fighting fix.

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