By David Macugh, AP Business writer
FRANKFURT, Germany (AP) – With more than a trillion euros still in the pipeline in the economy, the European Central Bank on Thursday left its major bond-buying program unchanged as the 19-country eurozone caused a winter economic downturn. Ubiquitous epidemic.
The focus will be focused on the subsequent comment by the bank’s president Christine Lagarde about the decision for recovery in 19 countries using the euro currency. The ECB faced potential concerns over political unrest in a heavily indebted Italy, where the government won a confidence vote this week, and on a stronger euro, which could weigh on exports and growth.
The European economy is going through a rough winter as virus cases and deaths have increased, leading to new restrictions on businesses. Germany extended its partial lockdown on Tuesday until 14 February, France imposed a curfew at 6 pm, and Portugal set a new record in case numbers on Wednesday. Analysts at Oxford Economics believe that economic output may fall in the first three months of the year.
The EU Executive Commission estimates that the eurozone economy has shrunk by 7.8% last year and should rebound to 4.2% this year. The official number for the previous year will be released on 2 February.
The economy is being pushed forward by large-scale incentives from the ECB, national governments and the European Union. The ECB’s decision not to accommodate its flagship programs was largely expected as it added a major dose of excitement to its December 10 meeting only last month. The Governing Council added 500 billion euros to the purchase of its epidemiological emergency stimulus bonds, bringing the total to 1.85 billion euros ($ 2.2 trillion), and extending regular purchases through at least March 2022. More than half of the total is still waiting to be deployed. .
Bond buying is a way of pumping newly created wealth into the economy, which aims to raise inflation to levels that are currently considered too low. The purchase also keeps market interest rates down so that companies can use the credit needed to get through the epidemic recession.
One consequence of the purchase is that governments can use the bond market to borrow cheaply as their scarcity increases through spending on epidemic support, such as paying salaries for scorched workers to avoid layoffs .
Additional stimulus is from the EU’s 750 billion euro fund set up by member states to support recovery through shared lending – a step towards further solidarity and integration among the 27-member EU. The fund supports projects that reduce carbon dioxide emissions, the main greenhouse gas blamed for climate change, and that promotes the proliferation of digital technology and infrastructure.
The ECB is the principal monetary authority for countries that use the euro, which plays a role consistent with the Federal Reserve in the US. It sets the key interest rate benchmark and monitors banks. So far 19 out of 27 countries of the European Union have joined the euro.
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