Page 3 of 3

Exactly. But the solution could be very simple. The EU might take the view that this is a European and not an Italian or French problem. Let’s just pay for it together. I’m not sure this will happen but it’s a possible solution.

Do you expect another interest rate cut in the Eurozone or Switzerland?

No. Normally, when you cut rates, you would expect the big impact in about 12 months’ time after the decision. Of course, the crisis may be long gone by then.

«You can't cut interest rates much further»

Given how low interest rates are, you can’t cut them much further. The package provided by the ECB and by the EU banking supervisors was a very good package with a focus on supporting lending and not on cutting interest rates.

The ECB package aside, the main lead was taken by member states, and not the EU. Why do you think this was?

The crisis is a heart attack but for the real economy and not the financial sector. In 2008 it was the other way around. Financial institutions worried whether their counterparties were solvent and tried to hoard liquidity. That was a very different thing.

The key issue is for governments to take action and support the economy. Central banks can help out in the background by providing plenty of liquidity, and making sure that banks don’t face capital constraints.

Central bank action is inherently more technocratic and therefore swifter than fiscal policy, which is highly political.

What should the SNB do this week?

I suspect it might not do very much. They will say that they stand ready to take action if need be. But with so many people in Switzerland concerned about negative interest rates, it is not a big winner to cut rates further. The SNB has a successful track record of navigating financial turbulences.

Is the virus going to trigger a wave of consolidation in the banking industry?

In general, Europe is overbanked. That’s why banks in the EU have profitability problems. The crisis will give an impetus for more banking consolidation across Europe. Large institutions have a cost advantage.

On the other hand, if you are going to buy a bank, you want to make sure that it is sound. If you have a massive macro-economic uncertainty as we have now, it reduces the attractiveness of bank mergers.

Stefan Gerlach is chief economist at EFG Bank. He served as deputy governor of the Central Bank of Ireland in from 2011 to 2015 and attended the meetings of the European Central Bank's Governing Council. Before that, he was professor of monetary economics and managing director of the Institute for Monetary and Financial Stability at the Goethe University in Frankfurt. He was also and member of the monetary experts panel of the European Parliament's Committee on Economic and Monetary Affairs.

In 2005-2007 he was secretary to the committee on Global Financial System, which was chaired by Vice-Chairman Don Kohn of the Federal Reserve Board, at the BIS in Basel. In 2001-2004 he served as executive director and chief economist at the Hong Kong Monetary Authority and director of the Hong Kong Institute for Monetary Research.