European Central Bank nearly doubles pandemic support scheme

ECB doubles virus support

The European Central Bank has boosted its pandemic emergency support program by an unexpectedly large 600 billion euros to 1.35 trillion euros ($1.5 trillion), adding to a range of efforts in Europe and around the world to help the economy weather the steep downturn caused by the virus outbreak.

The ECB measures announced Thursday aim to keep affordable credit flowing to the economy amid uncertainty about the speed of any recovery following the easing of lockdowns across Europe.

The new stimulus comes on top of added spending by governments and similar efforts by the U.S. Federal Reserve, the Bank of England, the Bank of Japan and others around the globe as the world tries to cope with a sharp, simultaneous blow to both developing and rich economies.

The central bank for the 19 countries that use the euro expects the bloc's economy to shrink by a painful 8.7% this year and to recover by a more modest 5.2% in 2021. President Christine Lagarde warned that “the speed and scale of the rebound are highly uncertain.”

Lagarde removed a face mask as she walked into an empty press room at the bank's skyscraper headquarters in Frankfurt for the online news conference after the policy meeting of the bank's 25-member governing council, which was conducted by teleconference.

She cautioned that even though lockdown measures are being eased, a significant rebound was not yet in sight.

“While survey data and real-time indicators for economic activity have shown some signs of a bottoming-out alongside the gradual easing of the containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding two months,” she said.

The ECB's moves reflect similar concerns to those motivating other central banks, including the Fed, which has slashed short-term interest rates to near zero and started buying $2 trillion in Treasury securities and mortgage-backed bonds to keep credit markets functioning.

Under the pandemic support program, the ECB buys corporate and government bonds and other financial assets from banks, paying with newly created money. That helps lower longer-term interest rates, keeping the pandemic from drying up needed funding for borrowers. On Thursday it said it was extending its duration to at least the end of June next year, from the end of 2020 currently.

The large size of the intended purchases also sends a signal to financial markets that the ECB is determined to ensure interest rates remain low throughout the eurozone and prevent borrowing costs from rising for indebted governments such as Italy.

While the ECB says its purchases are not targeted at supporting Italy, the program so far bought a larger share of Italian bonds than for other countries and is credited with keeping market pressure off a nation that has been among the hardest hit by the pandemic.

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