The ECB should refrain from new anti-crisis measures in the eurozone on Thursday, hoping that European leaders gathered in stride will take over in the face of the economic impact of the coronavirus.
Its president Christine Lagarde said last week that we should not wait for a new decision at the last monetary meeting before the summer break of the European Central Bank, given the massive support measures already taken in recent months.
“We have done so much that we now have a fair amount of time to assess in detail” their impact, the Frenchwoman told the Financial Times.
The ECB’s Governing Council will especially have its eyes riveted on Brussels on this occasion, where a summit of European leaders is being held this weekend to try to agree on a recovery plan of 750 billion euros.
For Ms. Lagarde, this project has what it takes to “make a difference”.
It responds to calls it has regularly made in the past to states to act and stop leaving all the work to support the economy to the ECB.
The International Monetary Fund also urged governments on Wednesday evening to keep the purse strings open to help businesses and employees, despite the risk of debt explosion.
“At this stage of the crisis, the cost of premature withdrawal of the measures would be greater than that of continuing support where necessary,” said general manager Kristalina Georgieva.
– Reluctance of the “frugal” –
The European recovery plan, however, arouses reluctance from several so-called “frugal” countries in northern Europe, hostile to the idea of subsidizing states in need with mutualized debt, which are located especially in the south, notably the ‘Italy.
Details, by EU country, of the vast economic recovery plan proposed by the European Commission (AFP /)
The ECB has already increased its emergency program by 600 billion euros to inject liquidity into the banking and economic circuit in the face of the impact of the pandemic (PEPP). It was initially endowed with 750 billion euros, aiming to buy public and private bonds on the markets in order to relieve banks, states and companies.
The ECB expects a fall in GDP in the euro area this year of 8.7%, followed by a rise of 5.2% next year.
Consumption has recovered since May in the eurozone after the reopening of shops, but the timid rebound on the production and export side means that the pressure for a rise in prices “will remain low”, according to Fritzi Köhler-Geib, chief economist of the KfW.
However, the low level of inflation, a sign of sluggish activity, remains the main concern of the guardians of the euro. Its annual rate rose slightly to 0.3% in June after 0.1% in May, far from the level desired by the ECB of almost 2%.
– Dispute resolved –
Under these conditions, the ECB’s interest rates remain at a historically low level and the IMF has urged the central banks to continue along this path.
“Monetary policy should remain accommodative” where “inflation is below target, as was the case in many countries during this crisis,” he said on Wednesday evening.
The ECB has at least one immediate subject of satisfaction: it has managed to put an end, at least provisionally, to a dispute with German justice and to clear the horizon for future actions to support the economy.
In May, in a resounding judgment, the German supreme judges had criticized its massive debt buy-back programs and demanded that the monetary institute, but also the German authorities, justify their merits before the beginning of August. Under penalty of prohibiting Germany from participating.
Both the ECB, the government and German MPs have been working on it in recent weeks, and the court has decided the case is closed immediately.