June 05, 2020 |
With the EU’s economy slowly reopening after months of hibernation, and the European Commission’s Next Generation EU stimulus package still several months away, the European Central Bank, on Thursday significantly stepped up its €750 billion pandemic bond-buying program.
The ECB’s Governing Council’s decision to step up the institution’s Pandemic Emergency Purchase Program (PEPP) by an additional €600 billion comes as eurozone economies begin to reopen, but the European Commission’s proposed Recovery Fund faces an uphill political battle in the European Council.
Thursday’s decision brings the ECB’s COVID-19 public and private bond purchasing program to a combined €1.35 trillion in support of financing the eurozone’s economic recovery. Crucially, however, the PEPP’s top-up provides immediate liquidity support to businesses and governments.
As such, the PEPP is critical in financing the healthcare costs and economic recovery effort until a high-level agreement by EU Heads of State and Government can be found on the Commission’s proposed €1.85 trillion Next Generation EU Recovery Fund and MFF. Yet, such an agreement is not expected before July, when EU leaders are to meet in person for the first time since late February.
In light of this, the package is not expected to be in place to provide financial assistance before the beginning of 2021. PEPP, meanwhile, is set to run until June 2021, unless extended by the ECB’s Governing Council.
Moreover, with its PEPP expansion decision, the ECB not only sends a signal to the business community and global financial markets that it will continue to do whatever is necessary to grow the European economy, but also defies and fights back against last month’s ruling by the German Constitutional Court that the Bundesbank’s participation in its older bond-buying program may be unconstitutional.
The ruling, which caused a political and legal storm in both Germany and the EU institutions, has widely been regarded as greatly overstepping its competencies by contradicting a European Court of Justice ruling and seeking to exert oversight over an independent EU institution.
Compliments of Vulcan Consulting – a member of the EACCNY.