(Bloomberg) — European Central Bank officials have given up on the idea of a swift economic rebound and are ready to add stimulus again next month if new information suggests existing efforts aren’t enough.
Policy makers agreed at their April 30 meeting that a “V-shaped recovery could probably already be ruled out at this stage,” though their emergency asset purchases prevented the likelihood of a self-reinforcing downward spiral, according to an account of the virtual discussion.
“At the June meeting, more information would be available, including new Eurosystem staff macroeconomic projections,” the account showed. “The Governing Council would have to stand ready to adjust the Pandemic Emergency Purchase Program and potentially other instruments if it saw that the scale of the stimulus was falling short of what was needed.”
Policy makers decided at the meeting to ease the terms of their long-term loans to banks and introduced a new liquidity tool, but opted against expanding quantitative easing. Most economists expect the 750-billion euro ($ 815 billion) emergency bond-buying program will be increased, perhaps as soon as the next policy meeting on June 4.
The ECB has pledged to buy more than a trillion euros of debt this year — the most in its history — using the pandemic program and an earlier one. The institution has led the European-level response, with most fiscal action coming only from national governments.
A concern was voiced that the ECB’s large-scale interventions in sovereign bond markets could give rise to “fiscal dominance’” — encouraging irresponsible spending by governments. The Governing Council agreed that “fiscal policy also needed to play an essential role.”
It may get its wish. German and French leaders finally proposed a 500 billion euro aid package this week that might ease some of the pressure, though it requires approval by all 27 European Union member states and would only kick in next year.
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