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ECB nearly doubles stimulus programme to fight coronavirus economic crisis

The European Central Bank in Frankfurt, in charge of monetary policy for the 19 countries using the euro.
The European Central Bank in Frankfurt, in charge of monetary policy for the 19 countries using the euro. Copyright Euronews
Copyright Euronews
By Euronews with AP
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As the ECB pumps more money into the Eurozone economy to prop up businesses with cheap credit, President Christine Lagarde warns that the speed and scale of the recovery are "highly uncertain".


The European Central Bank has boosted its emergency support programme by €600 billion to €1.35 trillion, adding to efforts made all around the world to help the global economy weather the crisis caused by the virus outbreak.

The unexpectedly large ECB stimulus announced on Thursday aims to keep cheap credit flowing to businesses amid high economic uncertainty.

It comes on top of spending by governments and similar moves by the US Federal Reserve, the Bank of England, the Bank of Japan and other central banks around the globe designed to prop up the economy.

The ECB – which looks after monetary policy for the 19 countries that use the euro –expects the Eurozone’s economy to shrink by 8.7 per cent this year and grow by 5.2 per cent in 2021.

President Christine Lagarde warned that "the speed and scale of the rebound are highly uncertain."

"While survey data and real-time indicators for economic activity have shown some signs of a bottoming-out alongside the gradual easing of the containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding two months," she said.

Under the pandemic support programme, the ECB buys corporate and government bonds and other financial assets from banks, paying with newly created money. That helps lower longer-term interest rates, and keeps credit flowing to borrowers.

The bank now says it is extending the programme’s duration until at least the end of June 2021. The scheme had previously been scheduled to wind up at the end of 2020.

While the ECB says its purchases are not targeted at supporting Italy, the programme has so far bought a larger share of Italian bonds than for other countries and it has been credited with keeping market pressure off the nation, one of the hardest hit by the pandemic.

The bloc wants to avoid a spiral of rising borrowing costs that could trigger a sovereign debt crisis similar to the one that led to Greece and four other Eurozone countries (Ireland, Portugal, Spain and Cyprus) to need international bailouts in the previous decade.

The support from the ECB comes on top of up to €540 billion in financial aid from Eurozone governments that includes credit lines from the euro bailout fund, as well as a longer-term EU recovery fund of €750 billion that is still being worked out.

Germany, the largest member economy, on Wednesday agreed on an additional €130 billion of stimulus including tax breaks and subsidies for buying electric cars.

The European Central Bank left its key interest rate benchmarks unchanged at record lows. The rate at which it lends to commercial banks is zero. Its rate on deposits left overnight by commercial banks is now minus 0.5 per cent, a penalty aimed at pushing banks to lend any excess cash.

The ECB has also set up long-term offers of credit to banks at even lower rates if they show they are lending to companies.

The ECB said it would also continue an earlier bond-purchase programme started before the pandemic. Those purchases will continue to run at €20 billion per month, providing yet more monetary stimulus.

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