Home » today » Business » Virus: ECB waits for European states to take over

Virus: ECB waits for European states to take over

Published on :

Frankfurt (AFP)

The ECB should refrain from new anti-crisis measures in the eurozone on Thursday, hoping that European leaders gathered in stride will take over in the face of the economic impact of the coronavirus.

The President of the European Central Bank, Christine Lagarde, said last week that no new decision should be expected at the last monetary meeting before the summer break, given the massive support measures already taken in recent months.

“We have done so much that we now have a fair amount of time to assess in detail” their impact, the Frenchwoman told the Financial Times.

The Governing Council of the ECB will especially take this opportunity to keep its eyes on Brussels, where a summit of European leaders is being held the next day to try to agree on a recovery plan of 750 billion euros.

For Ms. Lagarde, this project has what it takes to “make a difference”.

It responds to calls it has regularly made in the past to states to act and stop leaving all the work to support the economy to the ECB.

– Reluctance of the “frugal” –

This plan, however, arouses reluctance from several so-called “frugal” countries in northern Europe, hostile to the idea of ​​subsidizing states in need with shared debt, which are mainly in the south, notably Italy.

German Chancellor Angela Merkel has warned that she cannot guarantee that a compromise will be reached this week.

The ECB has already increased its emergency program by 600 billion euros to inject liquidity into the banking and economic circuit in the face of the impact of the pandemic (PEPP). It was initially endowed with 750 billion euros, aiming to buy public and private bonds on the markets in order to relieve banks, states and companies.

In this context, interest rates have remained at their lowest level for months, with in particular a “negative rate” of 0.50% hitting the deposits that commercial banks leave at the counters of the ECB instead of distributing them in the economy.

If no measure is expected, Lagarde could nevertheless emphasize Thursday “that the Central Bank will do more if necessary” to support the economy, at a time when fears of second waves of infections are rising, according to economist Jack Allen- Reynolds of Capital Economics.

The ECB expects a fall in GDP in the euro area this year of 8.7%, followed by a rise of 5.2% next year.

Consumption has recovered since May in the eurozone after the reopening of shops, but the timid rebound on the production and export side means that the pressure for a rise in prices “will remain low”, according to Fritzi Köhler-Geib, chief economist of the KfW.

However, the low level of inflation, a sign of sluggish activity, remains the main concern of the guardians of the euro. Its annual rate rose slightly to 0.3% in June after 0.1% in May.

– Dispute resolved –

As a result, the current “expansive” monetary policy will “remain appropriate” and this as long as the ECB is far from the nails of its mandate, which is to bring the inflation rate in the euro zone to a level close to 2%, according to Ms. Köhler-Geib.

The ECB has at least one immediate subject of satisfaction: it has managed to put an end, at least provisionally, to a dispute with German justice and to clear the horizon for future actions to support the economy.

In May, in a resounding judgment, the German supreme judges had criticized its massive debt buy-back programs and demanded that the monetary institute, but also the German authorities, justify their merits before the beginning of August. Under penalty of prohibiting Germany from participating.

Both the ECB, the government and German MPs have been working on it in recent weeks, and the court has decided the case is closed immediately.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.