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Free AccessMNI POLICY: ECB Will Boost PEPP As Necessary, Lane Says
By Luke Heighton
FRANKFURT (MNI) - The ECB will increase its pandemic emergence purchasing
programme if bonds spreads widen significantly, chief economist Philip Lane
indicated Monday, as he pledged to put price stability ahead of the German
Constitutional Court's concerns over monetary financing.
Lane declined to say whether the euro zone economy has already met the
criteria for the ECB's 'worst-case' scenario of a 12% fall in GDP growth in
2020, but he noted that, compared with March, economic activity in April had
everywhere experienced a "deep fall," with a return to pre-crisis activity
levels unlikely before 2021, "if not later."
Here are key points from the interview with El Pais:
- The ECB is a "goal-oriented institution," Lane explained, with PEPP's
"exact figure [...] of secondary importance." June's monetary policy meeting "is
still three weeks away," he added, "and we are in the process of analysing the
situation. If we see that financial conditions are too tight, or the pressure on
individual bond markets is not reflecting economic fundamentals, we can adjust
the size or duration of our purchases, which we can anyway allocate flexibly
over time and market segments."
- Discussing the German Constitutional's Court's ruling against the ECB's
public sector purchase programme and its implications for PEPP, Lane stressed
that the ECB is both "independent" and "subject to the jurisdiction of the
European Court of Justice, which ruled in favour of our public sector purchase
programme." Moreover, he said, ECB is "careful to remain at a good distance"
from "monetary financing [...] and this has also been confirmed by the court
rulings."
- "In March the pandemic and the measures to contain it had already led to
a substantial contraction of activity," Lane said. "This situation got worse
again in April, where we saw a deep fall in activity everywhere. Now the picture
is changing: some countries are beginning to loosen their lockdowns. How this
will develop in the future depends a lot on how quickly the restrictions on
economic activity can be eased, but also on how we adapt to living with the
virus. The speed at which the economy bounces back will then hinge on whether
consumers are more reluctant to consume and businesses hold back on investment.
From today's perspective, it looks in any case unlikely that economic activity
will return to its pre-crisis level before 2021, if not later."
- Asked whether the Covid-19 crisis would deepen Europe's north-south
divide, Lane noted that not all countries had been able to implement fiscal
policies to the same degree, but that "Europe as a whole benefits when a country
like Germany responds to the crisis more emphatically because, for example, it
can boost Spanish or Irish exports. So we shouldn't necessarily see these
differences as negative: it is good news that countries with strong finances are
responding forcefully to the crisis."
- "I think it is useful to look at this more in terms of the following
question," he continued. "What should be financed at European level and what at
national level? One of the proposals under discussion is to increase the EU's
budget and have the European Commission distribute the funds. One advantage of
this proposal is that it would not entail an increase in national public debt,
and keeping the cost of debt low will help governments tackle the pandemic and
support the recovery. Instruments like the Commission's SURE programme, the
European Stability Mechanism (ESM) or the European Investment Bank also make an
important contribution in this respect."
- Lane said he "understood" the criticism that the initial response to the
crisis was "has been somewhat slow," and that there is "still more to be done to
deal with this unprecedented crisis. In particular, it is important to make sure
that the funding is in place to guard against downside risks and support the
recovery in all EU countries. Joint and coordinated policy action has a crucial
role to play here."
--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com
--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com
[TOPICS: M$X$$$,M$$EC$,MFX$$$,MGX$$$]
To read the full story
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.