The European Central Bank is in a difficult position, with financial markets pricing in a near 100 percent probability of a 10 basis point cut in the already negative −0.5 percent deposit rate on bank reserves when the ECB's Governing Council meets March 12. Markets recognize the relative impotence of monetary policy in responding to the COVID-19 outbreak, which was initially a supply-driven shock that is now morphing into slack demand and the need for decisive government responses to the public health crisis. With the exception of Italy and the announcement of new investment in Germany, however, little is being done and markets expect a central bank independent of politics to step up and act as the "only game in town."...
