Frankfurt / Main (dpa) – The European monetary authorities are preparing new emergency measures in light of the worsening crisis in the Crown.
The European Central Bank (ECB) is in the process of taking all its instruments and their effects under the microscope, said Central Bank President Christine Lagarde after deliberations at the ECB Council in Frankfurt. It’s about finding the “best possible combination” to do justice to the situation.
The Governing Council agreed that more measures were necessary, Lagarde said. “The ECB will also be there in the second wave.” The risks to the economy are clearly increasing. Lagarde emphasized: “We will use all the flexibility we have.”
At their December meeting (December 10), the monetary authorities want to carry out a “comprehensive reassessment” based on the new projections for the economy and inflation. Based on the updated assessment, the ECB “will recalibrate its instruments as the situation arises to (…) ensure that financing conditions remain favorable to support the economic recovery and counter the negative effects of the pandemic ( …) “announced the central bank.
Economists assume that the Governing Council will decide to expand the emergency purchase program for government and corporate bonds. So far, the particularly flexible PEPP (Pandemic Emergency Purchase Program) purchasing program launched this March has been estimated at € 1.35 trillion through at least the end of June 2021. Securities purchases help both states and to companies: they do not have to offer such high interest rates if a central bank is a large buyer of the paper in the market.
Recently, there have been increasing signs that the economic recovery in the euro area is stalling. The corona virus is spreading massively again. In many countries, including Germany, governments are once again restricting public life. The increase in the number of infections and the new restrictions meant headwinds for the economy, Lagarde said. It is clear that the economic recovery in the euro area is losing momentum “faster than expected”.
The central bank president, who has been in office for a year, recently highlighted in an interview that monetary policy options have not yet been exhausted: “If more needs to be done, we will do more.” In addition to buying additional bonds, the ECB has so far responded to the pandemic with extremely cheap new long-term loans for banks.
The ECB has little room for maneuver when it comes to interest rates. The key interest rate in the currency area of the 19 countries has been at a record low of zero percent for four and a half years and will remain at this level even after Thursday’s interest rate meeting. Commercial banks have had to pay interest since mid-June 2014 when they deposited money with the central bank. This deposit rate is kept at minus 0.5 percent. Exemptions for certain sums are supposed to relieve banks here.
According to the Bundesbank’s assessment, negative interest rates have so far not been a problem for German banks. However, it is increasingly likely that in a mixed situation of economic recession, increasing provisions for possible loan defaults and contracting capital buffers, a point will be reached where negative interest rates will lose their effect or turn into the opposite.
With its monetary policy, which has been expansionary for years, the ECB wants to stimulate the economy and get closer to its goal of a stable price level at just under 2.0 percent inflation. Environmentalists accuse the ECB of buying too many corporate securities in its multi-billion dollar bond purchases, which are bad for the climate. Therefore, the Attac network, critical of globalization, called for a demonstration in front of the ECB building in Frankfurt on Thursday.
A comprehensive review of the monetary policy strategy is currently underway. Among other things, Lagarde relies on dialogue with critics. The French, who took office on November 1, 2019, also wants to include climate change in the considerations.