The European Central Bank says it will spend €750 billion in bond purchases to calm down sovereign debt markets, in the strongest signal in the euro area to date that it was ready to fight against the economic fallout of COVID-19.
“Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate,” ECB president Christine Lagarde wrote.
The remarks echoed the legendary words of her predecessor Mario Draghi who vowed in 2012 to do “whatever it takes” to preserve the euro at the height of the region’s sovereign debt crisis. The so-called Pandemic Emergency Purchase Programme will have an overall envelope of €750 billion and will buy government and corporate bonds. It came just six days after the ECB unveiled a big-bank stimulus package that failed to calm nervous markets, piling pressure on the bank to open the financial floodgates.
The programme will come on top of the €120 billion of additional asset purchases announced by the ECB last week. It will only be concluded once the bank “judges that the COVID-19 crisis phase is over, but in any case not before the end of the year,” the ECB said in a statement.
The decision came after the bank’s 25-member governing council held an emergency teleconference late into the evening, following criticism that the bank wasn’t doing enough to shore up the eurozone economy.
To further reassure markets, the bank said it would consider relaxing some self-imposed restrictions on bond purchases — which could potentially help countries like debt-laden Italy whose bond yields have soared over the COVID-19 panic.
The ECB also decided to ease some of its collateral standards to make it easier for banks to raise funds. The ECB “will do everything necessary within its mandate,” said the communique. The institution “is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.”
Measures taken by central banks around the world so far have surpassed those of the 2008 financial crisis, with the US Federal Reserve leading the way. The Fed has taken interest rates down to virtually zero and massively increased cash injections into financial markets, including an additional $1.5 trillion last week and $1 trillion so far this week.
Central banks in England, Canada, China, Australia and Japan have similarly taken emergency steps to keep money flowing through the financial system. Since 2015, the ECB has spent some €2.7 trillion on its bond-buying programme. The ECB’s latest monetary printing move was welcomed by the euro area members. “I hope these measures will also make it clear to the stock markets, to the markets that Europe will protect its interests and Europe is determined to overcome this crisis”, Germany’s Economy Minister Peter Altmaier told Deutschlandfunk radio in an interview on Thursday.
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