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Corona crisis: will the ECB follow up again?

2020-04-30T01:56:31.233Z


The corona crisis plunges Europe into a severe recession. Governments and the European Central Bank are fighting against this with billions. The central bank keeps further options open.


The corona crisis plunges Europe into a severe recession. Governments and the European Central Bank are fighting against this with billions. The central bank keeps further options open.

Frankfurt / Main (dpa) - With a gigantic emergency purchase program, Europe's monetary authorities are bracing themselves against the economic consequences of the corona crisis. And it doesn't have to stay that way. "All options to support the economy are being examined," said ECB President Christine Lagarde recently.

Will the European Central Bank (ECB) follow up at today's Council meeting? Bank economists assume that the central bank will initially not take any further steps. ECB officials have recently signaled several times that they are now seeing governments in the European Union in particular.

In extreme cases, the central bank fears an economic slump of 15 percent in the eurozone and calls for the EU countries to act quickly together. Lagarde had warned at the recent EU summit that responding to the crisis could be too small and too slow.

Should the ECB "now take additional measures in advance, this would reduce the incentive for the governments of the euro countries to take further measures at European level," argues Commerzbank expert Michael Schubert. BayernLB economists assume that the ECB should try to "get back into normal working mode". BayernLB expects neither an expansion of the emergency purchase program nor a cut in interest rates. However, the ECB could refill bank loans on favorable terms to spur lending in the euro area.

Carsten Brzeski, ING chief economist for Germany, does not expect the ECB to take additional measures, even if it cannot be completely ruled out. He believes it is possible to expand the emergency purchase program at the June Council meeting when the ECB presents its current economic forecasts.

In addition to existing purchase programs, the central bank is initially investing 750 billion euros in government and corporate papers. The "Pandemic Emergency Purchase Program" (PEPP) should continue until the Governing Council considers the coronavirus crisis to have been resolved - at least by the end of this year. Monetary affairs officials had also stressed that they were "ready to increase the scope of their purchase programs and adjust their composition - without restrictions, as much and as long as necessary".

The purchases help states as well as companies: as a provider of the securities, they do not have to offer such high interest rates if a central bank acts as a large buyer on the market. The member states in the common currency area are trying to prevent the worst with billions of dollars in bailouts in the Corona crisis. The consequence: the indebtedness of the states increases, which is a burden especially for highly indebted countries even before the crisis.

The ECB has been in anti-crisis mode for years. The key interest rate in the euro area has been at a record low of zero percent for four years now. Negative interest rates on deposits are supposed to encourage banks to lend more loans instead of parking money at the central bank. The ECB also provides long-term loans to boost lending.

The central bank's current purchase programs for bonds have already reached a tremendous volume of EUR 2.78 trillion. In order to have more scope for emergency purchases in the Corona crisis, the ECB is ready to weaken its own limits. So far, for example, the upper limit was that the ECB may only buy a maximum of one third of government bonds in a euro zone. Now, with an exemption, it is also possible to acquire Greek government debt.

Source: merkur

All news articles on 2020-04-30

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