The European Central Bank wants to cushion the economic consequences of the Corona epidemic. Bonds are to be purchased for 750 billion euros.
This is where the money comes from: the headquarters of the European Central Bank in Frankfurt’s East Photo: dpa
In the fight against the economic consequences of the corona virus pandemic, the European Central Bank has announced an emergency bond-buying program worth 750 billion euros. This is to involve securities issued by the public sector and the private sector, as the ECB announced surprisingly on Thursday night. "Extraordinary times call for extraordinary action," ECB chief Christine Lagarde wrote on Twitter. "We are determined, within our mandate, to use the full potential of our tools," she stressed.
Despite the massive ECB money injections, the Dax was expected to start lower again on Thursday according to calculations by banks and brokerage houses. On Wednesday, it had closed 5.6 percent down at 8441.71 points due to renewed recession fears.
Oil prices, on the other hand, stopped the slide of the past trading days for the time being on Thursday. In the morning, a barrel (159 liters) of North Sea Brent cost 26.29 U.S. dollars. That was 1.41 dollars more than the previous day.
With the purchase program, the ECB wants to contribute, among other things, that it does not come to further distortions on the financial markets as a result of the coronavirus crisis, which would additionally burden the economy. Experts expect an economic slump as a result of the pandemic; however, the extent of the consequences is not yet foreseeable due to the still rapidly changing situation.
The purchase program will be terminated as soon as the ECB Governing Council considers the coronavirus crisis to have been overcome, but not before the end of the year, the ECB further explained. The central bank’s decision-making body, the Governing Council, also softened existing criteria on which securities can be purchased by the central bank. Accordingly, the ECB can now also buy Greek government debt, for example.
ECB chief Lagarde: "No limits".
The ECB stands ready to expand the program’s framework in size if necessary and to adjust the criteria of eligible securities, "as much as necessary and for as long as necessary," the ECB said. The central bank is determined to shape the financial framework so that all sectors of the economy can cope with the impact of the coronavirus epidemic, it added. "This applies equally to families, firms, banks and governments," the ECB said. Lagarde wrote on Twitter, "There are no limits to our commitment to the euro."
Europe’s monetary guardians, however, had already decided last week on a package of measures to counter the economic consequences of the Covid 19 pandemic. Accordingly, the ECB wanted to put an additional 120 billion euros into bond purchases by the end of the year. It was not immediately clear at first whether the sum is now a part of the new 750-billion program or whether it still represents additional bond purchases.
Cheap loans for banks
With the help of particularly favorable long-term loans, the ECB also wants to encourage banks to supply small and medium-sized companies in particular with money, as was said last week. In addition, leading central banks worldwide ensured the supply of the world’s reserve currency, the U.S. dollar, to the financial system. So far, however, the measures had largely fizzled out on the stock markets.
The key interest rate for the euro zone is already negative. Experts are therefore skeptical as to whether a further reduction in the already historically low interest rates in the euro zone would actually boost consumption.
In the U.S., the Federal Reserve has already lowered its key interest rate in two steps from 1.75 to 1.5 percent to almost zero percent in the meantime due to the economic turmoil caused by the coronavirus epidemic. In addition, the Fed intends to stimulate the economy with a $700 billion bond-buying program and to grant banks temporary emergency loans, as it did after the great financial crisis of 2008.