The Governing Council of the European Central Bank (ECB) decided on Thursday 4 June to extend until “ least the end of June 2021” and to increase to “€1,350 billion” the repurchases of mainly public securities as part of the PEPP operation launched in mid-March to combat the economic crisis caused by the Covid-19 pandemic (see EUROPE 12450/6).
In any case, we will continue our acquisitions through this transaction until “the coronavirus crisis phase is over”, said ECB President Christine Lagarde. “The purchases will continue to be conducted in a flexible manner over time, across asset classes and among jurisdictions”, she added.
According to published figures, the ECB had purchased €237.4 billion worth of securities by the end of May, almost a quarter of the €750 billion previously secured. On the secondary markets, €42 billion of Italian debt securities were purchased, a volume greater than Italy’s share in the Frankfurt-based institute’s capital distribution (see EUROPE 12498/7), as well as around €30 billion of private securities.
In addition, the ECB has decided to reinvest through the end of 2022 the capital of securities acquired under the PEPP and reaching maturity.
Referring to the unanimity among governors on the need for action, Ms Lagarde said that the operation was “very useful”, because it had helped to stabilise financial markets, by investing heavily from the end of March, as well as to facilitate the transmission of monetary policy in order to return to the inflation path observed before the outbreak of the pandemic.
The time horizon also gives the ECB time to see how the euro area economy will rebound in the second half of 2020 as the containment measures are gradually lifted.
The euro area economy, Ms Lagarde observed, is facing an “unprecedented contraction”, even though there are signs that the fall in GDP and job destruction may have reached its lowest point. Revising its previous forecast for 2020 sharply downwards, the ECB now estimates that, despite uncertainty about the extent of the socio-economic crisis, the recession will reach 8.7% this year before the euro area economy rebounds to 5.2% in 2021 and 3.3% in 2022.
Inflation was revised downwards significantly over the period as a whole. It should follow the following trajectory: 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022.
Next Generation EU. In addition, Ms Lagarde welcomed the introduction at European level of the three safety nets for States (activation of a ESM credit line), workers affected by short-time working (SURE instrument) and companies (EIB pan-European guarantee fund) (see EUROPE 12488/1 and 12494/20). She urged Member States to mobilise more budgetary resources to boost their economies, welcoming the Commission’s recent proposal for a revised Multiannual Financial Framework (MFF) for 2021-2027 and the European Recovery Plan (see EUROPE 12494/1).
Karlsruhe. Finally, the ECB President has been questioned several times about how the ECB will respond, within 3 months, to the ruling of the German Constitutional Court in Karlsruhe, which questions the proportionate nature of quantitative easing (PSPP), a previous massive repurchasing operation of essentially public securities initiated in 2015 to counter the risk of deflation in the euro area, as well as the primacy of EU law (see EUROPE 12480/17).
“We are confident that a good solution could be found, a good solution that will in no way compromise the ECB independence, the primacy of EU law nor the ruling of the ECJ”, which had found the PSPP “in line with our mandate”, said Ms Lagarde, assuring that the Governing Council was analysing the effectiveness and cost-benefit of all monetary policy instruments. (Original version in French by Mathieu Bion)