ECB beefs up bond-buying to €1.35 trillion to boost Eurozone economy
The European Central Bank (ECB) has dramatically increased its bond-buying programme in a bid to stimulate the moribund Eurozone economy, which has been battered by coronavirus.
The ECB added €600bn (£540bn) to its €750bn pandemic emergency purchase programme (PEPP), which it launched in March. It kept its main deposit interest rate on hold at minus 0.5 per cent.
It also extended purchases under the PEPP until at least the end of June 2021. The governing council said in a statement that, in any case, it “will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over”.
Under the PEPP, the Eurozone’s central bank buys mainly government bonds from banks and firms. This holds down interest rates across the economy and floods firms with cash in an effort to increase borrowing and spending.
The move came as the Eurozone economy remains mired in a deep and unequal downturn. Highly indebted countries like Italy and Greece are set to suffer the most. The ECB’s bond-buying will benefit them by bringing down bond yields – the cost of government borrowing.
The ECB governing council’s statement said: “In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance.”
It said it would support borrowing “in the real economy, especially for businesses and households”.
ECB part of fierce economic debates
The EU remains locked in debates about a recovery fund for the continent. Leaders are set to meet this month to thrash out the details of a plan.
Last month, Commission president Ursula von der Leyen proposed a €750bn fund, to be distributed mainly in grants. Yet the plan faces opposition from the so-called frugal four states, the Netherlands, Austria, Sweden and Denmark.
Figures released on Tuesday showed that the ECB’s purchases have been weighted towards Italy. It also snapped up Greek bonds for the first time since 2012.
The ECB’s decision to ramp up bond-buying showed that the bank was unfazed by a German constitutional court decision that demanded it justify its massive purchases of government bonds from 2015 or lose the Bundesbank’s involvement.
ECB president Christine Lagarde said last month that she was “undeterred” by the decision. “We are an independent institution, accountable to the European Parliament, driven by mandate,” she said.