The European Central Bank has left its bond-purchase stimulus program unchanged as the 19-country eurozone endures a winter economic slowdown due to the pandemic
By DAVID McHUGH AP Business Writer
January 21, 2021, 12:52 PM
• 3 min read
FRANKFURT, Germany -- With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.
Attention will focus on post-decision remarks by bank President Christine Lagarde about the outlook for the recovery in the 19 countries that use the euro currency. The ECB faces potential concerns over political turbulence in heavily indebted Italy, where the government survived a confidence vote this week, and over the stronger euro, which can weigh on exports and growth.
The European economy is going through a rough winter as virus cases and deaths have risen, leading to new restrictions on businesses. Germany on Tuesday extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal hit a new record in case numbers Wednesday. Analysts at Oxford Economics think economic output may fall in the first three months of the year.
The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year and should rebound by 4.2% this year. Official numbers for last year are to be released Feb. 2.
The economy is being propped up by massive stimulus from the ECB, national governments, and the European Union. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 billion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.
The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.
One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.
Additional stimulus is on the way from the European Union’s 750 billion euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.
The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.
