ECB throws another €500bn to counter Covid-19 impact

Photo: EPA Christine Lagarde

The European Central Bank decided to disburse another 500m euro to offset negative impact on European economies caused by the Covid-19 pandemic. The decision comes just ahead of Christmas shopping madness and amid rising number of people infected with the virus across Europe. ECB on Thursday decided to raise its ongoing bond purchase stimulus by 500bn euro, to 185tn from 1.35tn, and to extend the support programme until at least March 2022 instead of the current earliest end date of mid 2021, AP reported.

The purchases, made with newly created money, drive down longer-term borrowing costs and help keep credit affordable and available across the economy, for consumers, businesses and governments. That is critically important to help businesses survive until the pandemic eases, and to support governments that are borrowing heavily to pay for aid to businesses and workers.

The central bank also expanded its offerings of ultra-cheap, long-term loans to banks.

ECB President Christine Lagarde had made it clear in October that more help was on the way. The central bank is acting as new infections hover around record highs in Germany, the eurozone’s biggest economy, and as regional governments weigh new restrictions such as shutting schools or shops carrying non-essential goods.

The winter resurgence of the virus after an earlier peak in the spring means the eurozone economy will likely shrink in the last three months of the year after a strong rebound in the third quarter, when output jumped by 12.7%

Lagarde has said policymakers must keep support coming for businesses so that viable firms don’t go out of business before vaccines can help usher in a lasting recovery. Vaccinations are expected to begin in Europe early next year but it will take months to inoculate large numbers of people and limit the potential spread of the virus.

Support from governments has included cheap loans, furlough support that pays most of the salaries of workers put on short hours or sent home, tax breaks, and direct subsidies.

Governments have also marshalled support at the EU level by agreeing to borrow together to create a 750 billion-euro recovery fund. The fund is to pay for projects to expand the role of the internet and digital services in the economy, and to reduce emissions of carbon dioxide, the primary greenhouse gas blamed for climate change. The ECB did not change interest rate benchmarks, which are already at record lows.

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