The European Central Bank (ECB) Governing Council has announced a €750 billion bailout package to mitigate the economic impact of the Coronavirus or COVID-19.
The ECB decided to:
- To launch a new temporary asset purchase programme of private and public sector securities to 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.This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase program (APP). For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions. A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP. The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.
- To expand the range of eligible assets under the corporate sector purchase program (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP.
- To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.
The Governing Council of the ECB said it is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks, and governments.
Additionally, the Governing Council said it is fully prepared to increase the size of its asset purchase programs and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.
ECB President Christine Lagarde tweeted out that “extraordinary times require extraordinary measures.
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. https://t.co/RhxuVYPeVR
— Christine Lagarde (@Lagarde) March 18, 2020
Meanwhile, the US is preparing its own package of economic programs to backstop the sliding economy. The US Federal Reserve has already dropped rates to almost zero while entering the Repo market aggressively, reassuring money markets and more. The US Congress is preparing to send a bill to the White House to be signed by the President later today. The legislation may include $1 trillion in financial programs to support individuals and entities suffering under the Coronavirus pandemic.