Vienna. The President of the European Central Bank (ECB), Christine Lagarde, has called on the EU states to end the dispute over the EU budget and to quickly pay out urgently needed corona aid. The “Next Generation EU” financial package, which includes the € 750 billion reconstruction fund to deal with the consequences of the pandemic, must be implemented without delay, the Frenchwoman said on Thursday before the EU Parliament's Economic and Monetary Affairs Committee.
Poland and Hungary had vetoed EU financial planning, and there is a risk that the payment of the funds will be delayed. Lagarde painted a bleak picture of the economy in the face of the second wave of pandemics: “The eurozone economy is expected to be hard hit by the effects of the rapid increase in infections and the reintroduction of containment measures.” A central challenge will be to bridge the time gap until the vaccinations are well advanced and the recovery has reached its own momentum.
Cash injections for banks
After the German biotech company BioNTech and its US partner Pfizer, the US pharmaceutical company Moderna recently presented positive data from a crucial study with its corona vaccine. This raised hopes that a vaccine would be available soon.
The head of the ECB also confirmed that the central bank would readjust its monetary policy according to the situation. The EUR 1.35 trillion pandemic bond purchase program PEPP and the long-term large cash injections for banks – known as TLTRO in the professional world – are in the foreground. These have shown their effectiveness, said Lagarde: “Therefore, they will likely remain the main instruments for adjusting our monetary policy.” The next ECB interest rate meeting will take place in early December.
In the discussion, Lagarde pointed out to a question about possible losses on bond purchases that the ECB could not slip into bankruptcy or run out of money. “As the only issuer of central bank money in euros, the Eurosystem will always be able to create additional liquidity when necessary,” she said. Since spring 2015, the ECB has acquired public bonds from the euro countries with a volume of around three trillion euros.
When asked about the discussion about canceling corona-related government bond debt held by the ECB, Lagarde referred to the EU treaty: This prohibits the central bank from any monetary state financing. The five-star movement that co-ruled in Italy had asked the ECB to cancel such debts. EU Parliament President David Sassoli described this idea as an “interesting working hypothesis”. (Reuters / red.)
