ECB Leaves Monetary Stimulus Unchanged as It Assesses Pandemic's Economic Pain -- 2nd Update
By Tom Fairless
FRANKFURT -- The European Central Bank left its monetary
stimulus unchanged on Thursday, pausing to assess the economic pain
eurozone businesses and consumers are still suffering as they
emerge from lengthy lockdowns.
Europe was hit early and hard by the coronavirus pandemic, but
muscular intervention by governments and the ECB have so far helped
to curb infection rates and support consumer spending and growth.
The ECB alone unveiled around $3 trillion of stimulus measures in
recent months, putting its crisis response on par with the Federal
The ECB said in a statement Thursday that it would continue to
purchase EUR1.35 trillion ($1.54 trillion) of government and
corporate debt through June 2021 under its Pandemic Emergency
Purchase Program, or PEPP. The bank also left its key interest rate
unchanged at minus 0.5%.
"Economic activity improved significantly in May and June from
its trough in April, alongside the ongoing containment of the virus
and the associated easing of the lockdown measures," ECB President
Christine Lagarde told reporters.
Ms. Lagarde, a former International Monetary Fund managing
director and French finance minister, needs to steer the region's
economy out of its deepest crisis in decades, just as a faster
rebound in Northern Europe triggers calls for an early end to easy
ECB officials including Ms. Lagarde have signaled recently that
they think Europe's economy is on the mend. Confidence among
businesses and consumers is rebounding sharply, and retail spending
is surging, supported by massive government-funded job-furlough
However, the recovery is expected to be uneven, tilted toward
the richer North, and it depends heavily on costly government
support and a rebound in exports. The latter seems unlikely as key
trading partners like the U.S. continue to struggle with surging
Eurozone goods exports rose around 8% in May from the previous
month, but they were still down more than a quarter from their
February levels, data from the EU's statistics agency showed
The economies of Italy, France and Spain are expected to shrink
around 11% this year, roughly twice as much as Germany's, the
European Commission, the EU's executive arm, wrote in a report this
month. Italy's public debt is expected to rise above 150% of
economic output this year, more than double the level in Germany,
according to the International Monetary Fund.
Investors will pay close attention to Ms. Lagarde's description
of the economic outlook and of current discussions within the ECB's
25-member rate-setting committee.
Some ECB officials have started to worry publicly in recent
weeks that the bank's massive stimulus, billed as a temporary
response to the pandemic, could drag on for years. Jens Weidmann,
president of Germany's conservative Bundesbank, has noted that
Germany's economy is recovering, while arguing that the ECB's
stimulus should be withdrawn as the pandemic recedes.
The trouble is, the ECB probably can't step back from government
bond markets without driving up borrowing costs for weaker
countries like Italy, threatening a repeat of the region's
sovereign debt crisis.
Ms. Lagarde might call on European Union governments to do more
to help out. EU leaders will gather on Friday and Saturday to try
to thrash out a multibillion-euro stimulus package aimed at
supporting growth. Some EU leaders have suggested that a deal is
out of reach, however, amid resistance from fiscally conservative
countries like the Netherlands.
In her news conference, Ms. Lagarde urged EU leaders to quickly
agree on a package.
"An ambitious and coordinated fiscal stance remains critical,"
If EU governments can't agree, that could increase pressure on
the ECB to do more. Some analysts expect the central bank to roll
out fresh stimulus later this year.
"Radical policy action has reduced the risk of a debt crisis for
now, but only thanks to measures which are supposed to be
temporary," said Andrew Kenningham, chief Europe economist with
Capital Economics in London.
"Many things still need to go right if Italy is to avoid having
to restructure its public debt within the coming decade or so, and
that would again raise fears of a eurozone breakup."
Paul Hannon in London contributed to this article
Write to Tom Fairless at firstname.lastname@example.org
(END) Dow Jones Newswires
July 16, 2020 09:19 ET (13:19 GMT)
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