The European Central Bank released heavy artillery on Wednesday with a 750 billion-euro “emergency” plan to try to contain the economic repercussions of the coronavirus pandemic.
“Extraordinary times require extraordinary action”, tweeted the president of the Frankfurt Institute Christine Lagarde.
She promises that “there are no limits to our commitment to the euro”, suggesting that other measures are still likely to follow, even if it means using “the full potential of our tools”.
First Stock Exchange to react to the ECB plan, the Tokyo market opened Thursday, up 2%. And oil prices in Asia have risen sharply.
The “emergency buyout program in the face of the pandemic” via public and private debt buybacks for 750 billion euros will be completed by the end of the year, the institution said in a press release published in the outcome of a telephone meeting of the Board of Governors.
The keepers of the euro will end the program when it is judged that “the crisis phase of the Covid-19 coronavirus is over, but in any case not before the end of the year”, specifies the central bank.
– Support for the economy –
By thus massively buying up debt from eurozone governments and companies on the markets, the ECB hopes to relieve the banks and encourage them to maintain or even revive their loans to households and businesses, and thus to support production and employment.
This support should help revive a seized economic system, where many companies are forced to suspend their activity in the face of the virus and where some will soon find themselves threatened with bankruptcy.
By way of comparison, from March 2015 to December 2018, faced with the risks of deflation, the ECB had bought securities every month on the financial markets for a total in the end of 2.600 billion euros to support the eurozone, its ” QE “(quantitative easing) sailing at a rate of up to 80 billion euros per month.
Today the ECB goes even further in the face of the coronavirus.
By adding its buyouts resumed at the end of 2019 at a rate of 20 billion euros per month, the envelope of 120 billion euros released on March 12 as the first response to the coronavirus crisis and that of this Wednesday, his interventions will raise to 1.050 billion euros over the remaining 9 months in 2020, or nearly 117 billion euros committed per month.
The ECB also wants to organize its purchases on the market in a “flexible way”, which suggests that it could focus on certain sovereign securities in great difficulty to ease tensions on their debt.
This could benefit Italy, the country most affected by the epidemic and which saw its rates rise, accentuating the crisis.
The buyback program decided on Wednesday also includes for the first time securities issued by the Greek government, which had no place in the first “QE”.
– Macron applauds –
The ECB's potion is finally even higher than that of the American central bank (Fed), which announced on Monday the purchase of 500 billion dollars of Treasury bills and 200 billion dollars of mortgage securities, to “support the “these markets”, which are at the heart of credit flows to households and businesses, are working properly “.
French President Emmanuel Macron, who estimated six days ago that the ECB's first package was not going far enough, expressed its “full support for the ECB's exceptional measures” on Wednesday.
“It is up to us European states to be there through our budgetary interventions and greater financial solidarity within the euro zone”, he added.
The response of the ECB is “massive at all levels – size, flexibility, scope and commitment to review the limits” of its purchases set to date at 33% of the stock of debt by country, said also analyst Frederik Ducrozet, strategist at Pictet Wealth Management.