The European Central Bank is increasing bond purchases by $ 600 billion to support the economy as COVID infections rise.
The European Central Bank has unleashed another half-trillion euro ($ 600 billion) stimulus wave as the winter spike in COVID-19 infections halt large swathes of the economy and hurt people’s incomes. sales before Christmas before the most important holidays in the region.
The 25-member Governing Council on Thursday decided to increase from 500 billion euros ($ 605 billion) to 1.85 trillion euros ($ 1.64 trillion), and to extend the support program until at least March 2022 instead of the current first end date, mid-2021.
The purchases, made with newly created money, reduce long-term borrowing costs and help keep credit affordable and available throughout the economy, to consumers, businesses and governments. It’s critically important to help businesses survive until the pandemic subsides and to support governments that borrow heavily to pay for aid to businesses and workers.
The central bank has also broadened its offer of very cheap long-term loans to banks.
ECB President Christine Lagarde made it clear in October that more help was on the way. The central bank acts as new infections hover around record highs in Germany, the euro area’s largest economy, and as regional governments assess new restrictions such as closing schools or shops carrying non-essentials .
In France, bars and restaurants, gymnasiums, theaters, museums and cinemas remain closed. Outdoor Christmas markets have been closed across Europe, reducing foot traffic in generally bustling city centers, and many retailers will likely only see a fraction of their holiday activities, as restaurateurs face to forced closings have to settle for take-out sales – or nothing. German Chancellor Angela Merkel on Wednesday urged citizens to reduce social and other contact, saying: “We are in a decisive, perhaps decisive, phase in the fight against the pandemic.”
The winter resurgence of the virus after peaking earlier in the spring means the eurozone economy is likely to contract in the last three months of the year after a strong rebound in the third quarter when output jumped 12, 7%.
Lagarde said policymakers must continue to support businesses so that viable businesses do not go out of business before vaccines can contribute to a sustainable recovery. Vaccinations are expected to start in Europe early next year, but it will take months to vaccinate large numbers of people and limit the potential spread of the virus.
Government support has included cheap loans, holiday aid that pays most of the wages of workers set up or sent home, tax breaks and direct subsidies.
Governments have also mobilized support at EU level by agreeing to borrow together to create a € 750 billion ($ 908 billion) recovery fund. The fund is intended to finance projects aimed at expanding the role of the Internet and digital services in the economy and reducing emissions of carbon dioxide, the main greenhouse gas responsible for climate change. The fund was blocked by the conservative nationalist governments of Poland and Hungary, who oppose the money being made conditional on compliance with EU concepts of the rule of law. EU leaders are holding a summit on Thursday where they aim to resolve the dispute.
The U.S. Federal Reserve is also buying bonds, but more attention has shifted in recent days to government spending as Republicans and Democrats in Congress negotiate another round of stimulus . Fed officials will hold their next policy meeting on December 15-16. Several Fed officials have stressed the need for Congress to take action and have indicated that if lawmakers don’t provide more help, they can change their bond purchases to help the economy more.
The ECB has not changed the benchmark rates, which are already at historically low levels. The main refinancing rate at which it lends to banks is zero. The deposit rate on the money banks leave overnight at the ECB is minus 0.5%, a penalty that prompts them to lend money instead. On the other hand, banks that take long-term loans from the ECB may even get a negative rate themselves, meaning that the ECB pays banks to borrow as long as that money is at its disposal. tour loaned to companies.