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ECB to slow pace of emergency pandemic stimulus

  • September 09, 2021

The governing council of the European Central Bank (ECB) said it would advance with its emergency bond-purchasing scheme at a “moderately lower” pace than seen over the last six months, with the eurozone showing signs of economic recovery.

Since March, the ECB has been buying up debt at a pace of around €80 billion ($94.5 billion) a month as part of its massive pandemic-era stimulus, analysts told news agency AFP.

In a statement released Thursday, the council reiterated that the €1.85 trillion ($2.2 trillion) Pandemic Emergency Purchase Program would continue until March 2022 or “until it judges that the coronavirus crisis phase is over.”

Promising economic indicators out of Europe and the US have buoyed recent discussions about when central banks might start winding down the emergency stimulus unleashed in spring 2020, when the COVID-19 pandemic brought business activity to a near standstill.

But ECB President Christine Lagarde was clear that the adjustment does not signal an end to come for COVID-19 support. 

“The lady isn’t tapering,” she told a press conference, adding that the ECB was “recalibrating” the program in response to favorable economic conditions.

Rising inflation raises questions

Bolstered by signs that the US economy was recovering, the US Federal Reserve in August revealed it was considering slowing stimulus before the end of the year. In the weeks that followed, some ECB governing council members followed suit, telling Bloomberg it was also time for the euro area’s central bank to reconsider the generous bond-buying program it had instituted last year to keep borrowing costs low and cash flowing through Europe’s economy.

Eurozone GDP grew 2.2% in the second quarter of this year, according to the bloc’s statistics agency Eurostat, spiking once COVID-19 lockdowns were lifted.

Concerns over rising prices for consumer goods have also fueled much of the public debate over when to end central bank stimulus. In the euro area, inflation clocked in at 3% for August, the highest rate in 10 years and above what economists had predicted. It was also above the ECB’s inflation target of 2%. Global supply chain bottlenecks combined with pent-up consumer demand have driven up prices as too many euros chase too few goods.

Uncertainty with colder months ahead

Despite Thursday’s adjustment, the ECB recommitted to its ultra-loose monetary policy, leaving in place a pre-pandemic bond-purchasing program as well as historically low interest rates.

Recent developments with the pandemic mean that economic conditions remain precarious.

In Europe, summer months marked by rising vaccination rates and a return to public activities like dining out and shopping are now giving way to stagnating vaccination rates and a surge in COVID-19 infections which have governments worried about the colder months ahead.

New outbreaks in Asian countries continue to disrupt supply chains, fueling renewed uncertainty around when manufacturers will get their hands on the supplies and raw materials they need to fulfill orders. This poses a threat to economic output in the coming months.

Past missteps during economic crises have made the ECB extra cautious about when to signal an end to stimulus, Carsten Brzeski, the chief economist at ING Germany and Austria, told DW.

“The ECB still remembers 2008 and 2011. These are two times when we thought we’d come out of a crisis and the ECB prematurely started to hike interest rates,” he said. “This is built into the institutional memory of the ECB. So they’ve decided that the cost for being too late is lower than the price for being too early.”

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