Quarantine and other restrictions imposed by governments in Europe to slow the COVID-19 outbreak have reduced economic activities to a minimum, causing turmoil across the euro area. In Germany alone, the Association of German Banks (BdB) predicted that economic output in the country could fall by 5% in 2020.

On Thursday, the European Central Bank — the main bank for the 19 EU countries that use the euro —unveiled a huge bond-buying scheme worth €750 billion ($820 billion) named the “Pandemic Emergency Purchase Program.” But what is it and how will it help the economies of the euro area survive the pandemic?

What is the Pandemic Emergency Purchase Program?

Under the bond-buying scheme, the ECB will buy up government and corporate debt from countries across the Eurozone, including debt from Greece — the country which was excluded from previous ECB bond purchases due to its low credit rating. The newly agreed buys alone will be worth 6% of the euro area’s GDP.

The practice is known as quantitative easing (QE) and is a key crisis-fighting tool in monetary policy.

The scheme will be temporary, lasting until the bank judges the crisis to be over “but in any case not before the end of the year” the ECB governing council wrote in a statement.

The ECB may extend the scope of the program, as well as the criteria for eligible securities, “by as much as necessary and for as long as needed,” it said in the statement.

What effect does the ECB intend the program have?

By massively buying up government and corporate debt, the ECB aims to keep liquidity flowing in a bid to encourage bank lending and investment.

The bank said in the statement that the scheme will “counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.”

What was the reaction?

The move appeared to encourage investors with stock markets rising slightly in response. French President Emmanuel Macron said he fully supported the measure. In a tweet he said: “It is up to us European states to be ready through budgetary interventions and greater financial solidarity within the Eurozone.”

Christine Lagarde, president of the ECB, tweeted: “Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.”

kmm/stb (Reuters, AFP, dpa)

Keep up to speed with the day’s events when it comes to coronavirus with our live updates 

Each evening at 1830 UTC, DW’s editors send out a selection of the day’s hard news and quality feature journalism. You can sign up to receive it directly here.

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

Authentic Brands taps former H&M exec to helm Forever 21

(Reuters) – Forever 21’s new co-owner Authentic Brands Group said on Tuesday it had appointed former H&M (HMb.ST) executive Daniel Kulle as the new chief executive officer of the bankrupt apparel retailer. Kulle, a two-decade veteran at the Swedish apparel…

China’s power generation decreases in first four months

BEIJING – China’s power generation decreased in the first four months of this year, down 5 percent year-on-year, official data showed Friday. Electricity output hit about 2.14 trillion kilowatt-hours during this period, according to the National Bureau of Statistics. In…

Stock futures fall after Thursday’s modest gains

New York (CNN Business)Stock futures fell Thursday evening, reversing what had looked like positive momentum for Wall Street earlier in the day. Dow (INDU) futures dropped 243 points, about 1.2%. Nasdaq (COMP) futures were down about 0.9%, and S&P 500…

Millions of masks, COVID-19 test kits donated by Jack Ma Foundation for Africa arrives in Ethiopia

ADDIS ABABA — Massive medical supplies donated by China’s Jack Ma Foundation to 54 African countries arrived on Sunday morning in Addis Ababa, capital of the East African nation of Ethiopia, through an Ethiopian Airlines cargo flight. They include 5.4…