It might be a tired trope to say these days, but the definition of insanity is doing the same thing over again and expecting different results.
Before the coronavirus pandemic, the eurozone economy was on life support as the European Central Bank (ECB) threw money at the problem. For Mario Draghi, nothing worked, but he insisted to stay the course with QE after QE after QE.
In the COVID-19 economy, the ECB is accelerating the same policies from yesterday and expecting better results.
Is it going to happen? Probably not. The European ship is sinking.
ECB President Christine Lagarde announced on Thursday that she will be expanding the Pandemic Emergency Purchasing Program (PEPP) by about $600 billion to more than $1.5 trillion.
Lagarde confirmed that PEPP will be extended to June 2021, and it could go past that date if it feels the financial crisis has not been contained. Maturing principal payments from the assets it purchased during this time will be reinvested until the end of 2022. It will keep buying government bonds at a rate of $23 billion per month.
Interest rates were left unchanged: the primary refinancing rate stayed at zero percent, the marginal lending facility stood at 0.25 percent, and the deposit rate held steady at -0.5 percent.
She said in an announcement:
“Together with the substantial monetary policy stimulus already in place, today’s decisions will support liquidity and funding conditions in the economy, help to sustain the flow of credit to households and firms, and contribute to maintaining favourable financing conditions for all sectors and jurisdictions, in order to underpin the recovery of the economy from the coronavirus fallout.”
On top of the European Commission’s $826.5 billion stimulus package, it is surprising that the euro is strengthening in foreign exchange markets right now.
The ECB, no matter who is in charge, keeps proving that it has no clue what it’s doing.
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