More firepower. The European Central Bank has approved this Thursday to dedicate an additional 500,000 million to the purchase of assets to reduce the pressure on the galloping debts of the eurozone states on account of the response to the health and economic crisis of the coronavirus pandemic. In total, the ECB announces that it will use 1.85 trillion euros until March 2022. Its last decision was to allocate 1.35 trillion until June 2021.
Lagarde’s decision has to do with the macroeconomic projections prepared by Eurosystem experts for the euro area. These projections foresee a fall in GDP of 7.3% in 2020; and growth of 3.9% in 2021, 4.2% in 2022 and 2.1% in 2023. Compared with the macroeconomic projections prepared by the ECB experts of September 2020, the outlook for economic activity has revised downwards: in September, the fall in GDP forecast for 2021 by the ECB was -8%, instead of -8.7% that advanced in June. Likewise, in 2021 the ECB expected the economy to grow by 5.2%, two tenths more than expected in June, while in 2022 it expected growth of 3.2%, one tenth below the 3.3% that screened in June.
“Overall, the risks surrounding the growth prospects for the euro area remain,” Lagarde said, “but have become less pronounced. While the news on the prospects for launching vaccines in the near future is encouraging, the risks remain related to the implications of the pandemic for economic and financial conditions. ”
“The recovery is losing momentum faster than expected due to the increase in COVID-19 cases,” Lagarde said in October: “All the data point to a worsening in November due to the containment measures being taken against the pandemic. We do not expect good data for November. The ECB was for the first wave [con su programa de compras de deudas y activos por valor de 1,35 billones] and it will be in the second wave. ”
“In the current environment of risks,” said the ECB, “information, including the evolution of the pandemic, the outlook for vaccines and the evolution of exchange rates, will be carefully evaluated. The new round of macroeconomic projections prepared by the experts The Eurosystem in December will allow a comprehensive reassessment of the economic outlook and the balance of risks. Based on this assessment, the ECB will realign its instruments, as appropriate, to respond to the situation and ensure that financing conditions remain favorable for support the economic recovery and counteract the negative impact of the pandemic on inflation. ”
And December has arrived. And, with it, the readjustments. “In any case, the ECB will make net purchases until it judges that the coronavirus crisis phase is over,” states the note from the body’s Governing Council: “Likewise, the Governing Council decided to extend the reinvestment of principal payments. of the securities acquired with maturity in the PEPP [el programa de compras de la pandemia] until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference. ”
In addition, the ECB has decided to “recalibrate” the conditions of the third series of longest-term refinancing operations (TLTRO III), and to “extend the period in which considerably more favorable conditions will apply by 12 months, until June 2022 “. Likewise, the ECB has raised the total amount to be borrowed in TLTRO III operations from 50% to 55% of its stock of eligible loans. That is, cheaper money and for a longer time in order to provide an incentive for banks to maintain the current level of loans.
Along these lines, the ECB has also decided to offer four additional longer-term refinancing operations due to the pandemic emergency (PELTRO) in 2021, “which will continue to provide effective liquidity support”.
In parallel, the ECB will continue to purchase debt from the Asset Purchase Program (APP) at a monthly rate of 20,000 million euros, purchases that will continue “for as long as necessary to reinforce the impact of interest rates. official interest rates “and will end” shortly before interest rates start to rise.