20 March 2020 | By Marion Lupin
Coronavirus: ECB announces 750bn stimulus to rescue European economy
Amid expanding national lockdowns and plummeting markets, the EU unveils its plan to shield the eurozone economy.
The European Central Bank announced on Wednesday it would launch a new €750 billion bond-buying program to shield the Union’s economy from the economic aftershock caused by the Covid-19 pandemic.
This came a week after recently nominated president of the ECB Christine Lagarde was heavily criticised for saying that the EU’s top financial institution was “not here to close spreads” when asked about potential additional measures to ease borrowing costs for already highly indebted eurozone countries, causing panic among European markets.
Perhaps in an attempt to walk back the equivocal statement and reassure investors, on March 18 the ECB Governing Council announced its new temporary asset purchase programme of private and public sector securities, named the Pandemic Emergency Purchase Programme (PEPP), for an overall worth of €750 billion.
Desperate times call for flexible measures
Purchases under the new PEPP will be conducted “in a flexible” manner according to the ECB statement, which will allow for the purchase flow to be readjusted over time “across asset classes and among jurisdictions”. Under this flexible spending programme, the ECB also decided to waive the eligibility requirements for Greek public debt purchases, which have been traditionally excluded from bond-buying programs since the sovereign debt crisis of 2009, thus allowing for economic relief for the country which now counts over 464 confirmed cases and 6 deaths.
The quantitative easing plan is also highly flexible with regards to its duration, as the net asset purchases under the PEPP is set to terminate only once the crisis phase of the Covid-19 pandemic has passed, but in any circumstances “not before the end of the year”.
Despite this being the largest single purchasing scheme in the institution’s history, the ECB also clarified that it might still modify and possibly extend its action and measures of financial assistance if the need were to arise in the future. As put into words by a tweet from president Lagarde, perhaps in an attempt to remedy her previous controversial statement, “there are no limits to [the ECB’s]commitment to the euro”.
EU member states also stepping in
Several European countries have also announced emergency plans to rescue national economies from the forced stand-still many industry sectors are facing because of pandemic emergency measures and market uncertainty.
Chiefly, the German federal government is is providing €1 billion in credit for businesses and companies of all sizes, to be delivered through the state-owned KfW business development bank. New tax measures were also announced in order to ensure continued liquidity for companies. This comes in addition to any financial assistance that might be implemented at the state level, as is already the case in the state of Bavaria, which has announced a fund worth up to €10 billion intended to allow companies threatened by default to apply for guaranteed loans.
Spain, reporting 20.412 confirmed cases and 1.041 deaths as of 20 March 2020, announced initiatives worth €200 billion to assist companies and vulnerable groups, with €117 billion being mobilized by the government and €83 billion provided by private companies.
After Emmanuel Macron officially declared the country “at war” against Covid-19 and promised to support companies “whatever the cost”, France’s Minister for Economic affairs Bruno Le Maire also announced it would “immediately” set up a €45 billion fund to prevent the bankruptcy of companies struggling because of lockdowns or interrupted supply chains related to the pandemic, and up to €300 billion in government guarantees for coporate bank loans.