More than a trillion euros of stimulus is set to shake up life in a euro area battered by the coronavirus crisis.
With more than a trillion euros of stimulus still underway for the economy, the European Central Bank (ECB) left its key bond buying program unchanged on Thursday as the euro area of 19 countries suffers a slowdown winter economy due to the coronavirus pandemic.
ECB President Christine Lagarde told a press conference that the economy had likely contracted in the last three months of 2020 and the outlook for the future was at risk.
Coronavirus infections and deaths increased during the winter, leading to further restrictions for businesses. Germany extended its partial lockdown until February 14, France imposed a 6 p.m. curfew and Portugal hit several records in the number of cases.
Lagarde said that while the start of coronavirus vaccinations was “an important step”, the outbreak continued to pose “a serious risk to the euro area and global economies”.
She said the bank’s growth outlook of 3.9% in 2021 “still stands today.”
“We had anticipated the lawsuit and the lockdown measures that are currently in place … and this leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while warning that the short-term risk was “tilted.” on the downside, no doubt about it ”.
She said that “sufficient monetary stimulus remains essential” and that if things turn out worse than expected, “all instruments can be adjusted and nothing is out of place” in terms of stimulus.
The economy is supported by massive support from the ECB, national governments and the European Union (EU). The ECB’s decision not to adjust its key programs was widely expected as it only added a significant dose of stimulus last month, at its December 10 meeting.
The Governing Council added 500 billion euros ($ 608 billion) to its purchases of emergency pandemic stimulus bonds, bringing the total to 1.85 trillion euros (2.2 trillion euros). dollars), and extended regular purchases until at least March 2022. More than half of that total is still pending deployment.
Bond purchases are a way to inject newly created money into the economy, which is aimed at pushing inflation up to levels currently considered too low. Purchases are also keeping market interest rates low so businesses can access the credit they need to weather the pandemic crisis.
One of the results of these purchases is that governments can use the bond market to borrow cheaply as their deficits rise through pandemic support spending, such as paying the wages of workers on leave to avoid losses. layoffs.
Further stimulus is underway thanks to the EU’s 750 billion euro ($ 912 billion) fund created to support the recovery through loans shared by member countries – a step towards solidarity and integration increased among the 27 members of the EU.
The fund is intended to support projects that reduce carbon dioxide emissions, the main greenhouse gas responsible for climate change, and that promote the diffusion of digital technologies and infrastructures.
The EU Executive Board predicts that the eurozone economy shrank 7.8% last year. Official figures for last year are due for release on February 2.
The bank did not touch the benchmarks of interest. These are zero for short-term ECB loans to banks, and minus 0.5% for deposits left overnight at the ECB by banks. The negative rate is a sanction aimed at pushing banks to lend money rather than leaving it to the ECB.
The ECB is the main monetary authority in countries that use the euro, playing a role analogous to that of the US Federal Reserve. It sets the main benchmark interest rates and supervises banks. To date, 19 of the 27 EU countries have joined together to use the euro.