The European Central Bank launched its biggest bazooka yet at the coronavirus with an emergency package of at least €750bn of bond purchases.
It will see quantitative easing (QE) on an unprecedented scale, outstripping anything attempted in the years after the sovereign debt and banking crisis as the monetary authorities grapple with the economic effects of Covid-19.
三级成人视频“Extraordinary times require extraordinary action. There are no limits to our commitment to the euro,” said Ms Lagarde. “We are determined to use the full potential of our tools, within our mandate.”
三级成人视频So what exactly is the ECB doing – and will it work?
三级成人视频The headline figure is three-quarters of a trillion euros of QE – the digital printing of money to buy government bonds and private sector debt.
三级成人视频Added to existing programmes, this will equate to €115bn per month for the rest of 2020. The previous peak in 2016 averaged €80bn per month.
Greek Government debt will be bought in this emergency package, despite earlier concerns over the country’s creditworthiness.
三级成人视频This should drive down borrowing costs and enable Governments to borrow more as they spend to battle the crisis.
It should also stop debt markets freezing up, because investors know that there is vast liquidity available in markets should they wish to sell government bonds in future – giving them confidence to buy those bonds when nations need the cash.
三级成人视频The ECB will now buy commercial paper – a type of corporate debt – issued by businesses from any industry, not just the financial services sector, provided the borrower meets credit quality standards.
三级成人视频This extends the same principles to chunks of the corporate bond markets, keeping costs down and ensures markets remain liquid.
三级成人视频Collateral requirements in refinancing operations have been loosened too, so that the taps stay on for the rest of the financial system.
Is it enough?
Markets certainly cheered. Government borrowing costs across the eurozone tumbled, led by Greece, Italy and Spain.
三级成人视频It goes some way to counteracting the fear that the ECB was not geared up to act, particularly after Ms Lagarde said she was “not here to close spreads” in bond markets last week.
三级成人视频Economists and investors were particularly impressed by this new line from Frankfurt: “The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.”
Antje Praefcke at Commerzbank says it “constitutes another version of ‘whatever it takes’”, referring to the 2012 speech of Ms Lagarde’s predecessor Mario Draghi that helped stop the eurozone falling apart.
三级成人视频“The ECB is willing to do anything to help absolutely everyone in the EU. In my view that is a strong statement that should help to stabilise the markets,” she says.
The promise to do more may well be called on: the package is not big enough yet.
One problem is that the ECB is restricted to buying no more than a third of any given country’s bonds. It is almost there with Italy already, so for its promised QE to have any serious effect for the eurozone’s biggest debtor, officials will have to remove that cap.
Sven Jari Stehn at Goldman Sachs expects this to happen: “While the ECB did not raise the 33pc issuer constraint on sovereign purchases, it signalled its readiness to do so if necessary."
三级成人视频Economists also fear the response remains uncoordinated with insufficient joint action by Governments.
It could leave markets flooded with liquidity for the very short-term, but lacking any certainty over the strength of the eurozone to act as a whole – for instance, with a joint-financing scheme or mutually-backed bond, effectively lending Germany’s financial strength to indebted nations such as Italy.
三级成人视频“Yesterday’s announcement, while certainly impressive, is a liquidity salve more than it is a solvency cure,” says Richard McGuire at Rabobank.
“There remains a risk that concerns over creditworthiness will, once again, rear their head with the market effectively ratcheting up pressure to force euro officialdom to adopt some form of debt mutualisation.
“It is possible that euro officials will be ahead of the curve on this given talk yesterday of common issuance (a coronavirus bond). We, though, remain somewhat sceptical of this and, thus, view the sharp narrowing of spreads witnessed this morning as tactical rather than strategic.”