The European Central Bank has chosen to postpone difficult decisions until the start of the school year. At the meeting of its board of governors on Thursday, June 10, it decided to keep the monetary infusion in place since the start of the pandemic at the same level. Internal dissensions – some governors calling for a reduction in the pace of support for the economy – have not been listened to.
Christine Lagarde, the President of the ECB, summed up her attitude with one expression: “Steady hand” (literally, “steady hand”). One way of saying that the central bank is continuing its work of helping the economy. To allow States to finance themselves during this period of “whatever the cost”, since March 2020 it has launched an emergency program in the face of the pandemic (PEPP), intended to indirectly buy the debts of the countries of the euro zone. This has a total envelope of 1,850 billion euros, of which 1,100 billion have now been spent.
The impression that “things are happening behind the scenes”
With the economic recovery looming, the debate is now on the gradual withdrawal of this support. In March, seeing interest rates start to rise, the Frankfurt institution announced that it was going to purchase debt at a rapid pace. “Significantly higher”from around 17 billion euros to 20 billion euros per week. This Thursday, she took up this little sentence, announcing to keep a rhythm “Significantly higher”.
The traditional hawks are not far away, however. Mme Lagarde admits that the twenty-five members of the Board of Governors do not all agree. “There was a debate about the pace of purchasing. (…) There were a few differing opinions here and there. “ ” Although [Christine Lagarde] sent a message of stability and continuity, our impression is that there is a lot going on behind the scenes ”, says Frederik Ducrozet, strategist at Pictet, a private Swiss bank.
If the internal debates of the ECB are secret, the hawks are known: they come from the German, Dutch, Austrian and Finnish central banks. As early as April, Klaas Knot, the governor of the central bank of the Netherlands, openly raised the issue of the gradual withdrawal of the PEPP.
An optimistic but cautious ECB
For now, the signs of economic recovery are, however, too uncertain. Vaccination is accelerating across the euro area and health restrictions are lifted one after the other. But life is far from having returned to its normal rhythm. The tourist season remains very uncertain and it remains difficult to travel from one country to another. The rate at which households will spend the savings they accumulated during the pandemic is also a question mark. Currently, the gross domestic product (GDP) of the euro area remains 5.1% below its level before the crisis linked to Covid-19.
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