"The ECB will do everything necessary within its mandate to help the eurozone overcome this crisis." President Christine Lagarde writes it in black and white in the preface of the report on the activities of the European Central Bank in 2019 and this was reiterated by his deputy, Luis De Guindos, who presented it (strictly by videoconference) in the Economic Commission of the European Parliament. The Eurotower, says De Guindos, is "more determined than ever" to support the economy of the Eurozone grappling with the harsh recession caused by the coronavirus emergency.
The hesitations and gaffes of March seem light years away, when the former number one of the International Monetary Fund sent the market to sink, saying he did not "want to be remembered for another whatever it takes" and excluding from the tasks of the ECB that of " reduce spreads”.
The ECB has now shifted gears and its monetary policy “will continue to provide the necessary support for liquidity to reach European citizens and to the real economy”. If it is not a "whatever it takes", we are close. The problem is that it alone risks not being enough: "our response will be made more powerful if all the other policies contribute to reinforcing each other," says de Guindos. It is necessary “that the fiscal response to the crisis be strong enough in all areas of the Eurozone. Families and businesses must be able to contribute to Europe's recovery wherever they are. There must now be a political agreement leading to the construction of adequate instruments for this joint response and I look forward to the forthcoming discussions based on the European Commission's proposal".
THE ANSWER TO GERMANY
Before going into the details of the proposals, de Guindos replies remotely to the judges of the German Constitutional Court that in a sentence arrived on May 5th recognized the legitimacy of the quantitative easing launched in 2015, however asking the ECB to present within three months clarifications on the proportionality of the actions taken in recent years.
"We submit to the jurisdiction of the European Court of Justice and obviously we are accountable to the European Parliament”, underlined De Guindos, explaining that “we have two guiding principles, price stability and independence which is sanctioned by the European treaty. When we make monetary policy decisions, we don't do it in an ivory tower but we examine the interactions with other policies because we are well aware of the interactions”.
The vice president of the ECB underlined that the bank always carries out a proportionality analysis of its measures: “we analyze all the factors and when we make a decision it is because we believe that the advantages are greater than the negative effects but the analysis of proportionality and impacts is constant”. With regard to the low profitability of banks, complained above all by the authorities in Germany, de Guindos recalled how this has little to do with the ECB's monetary policy. The banks have also benefited from the economic recovery which has been facilitated by the economic policy measures introduced by the central bank over the years and by the reduction of NPLs on the balance sheet.
De Guindos' response comes less than 24 hours after the very harsh words pronounced by the French Economy Minister, Bruno Le Maire, according to which the request of the Karlsruhe judges "does not represent an element of stability". In a statement, the minister recalled how the European treaties guarantee the independence of the European central bank. "The ECB takes its decisions in total independence - he said - and decides the conditions for exercising its mandate under the exclusive control of the European court of justice which is the guardian of the treaties". The ECB, added Le Maire, is “the only one who can judge what needs to be done in terms of the conduct of monetary policy in the eurozone”.
EUROPEAN POLITICS
After the alarming data on Italy's GDP (-9,5%) and the Eurozone (-7,7%) provided on May 6 by the EU Commission, De Guindos talks about the weapons that the old continent must use to try to travel the road to recovery, giving a boost to growth. The first, the strongest, is the "single market", says the vice president of the ECB, which represents the source of collective prosperity. "Because of this it is crucial – he said – that we repair, strengthen and deepen it in the coming months. And this is especially true even more for the financial sector. A truly integrated and resilient market is essential to ensure financial stability and the financing of our economy. This is why it must be crucial in the union's agenda to make progress on the capital market front”. “It is necessary to give priority – adds de Guindos – to initiatives to mobilize private sector savings and to improve transparency and information for investors at European level. Given the urgency of the situation, we should be open to any new and innovative ideas that could accelerate progress on the capital markets union."
The ECB, for its part, will do its part. As explained by the number two of the Eurotower, theinflation in the Eurozone “has fallen further, to 0,4% in April, from 0,7% in March, according to initial estimates, mainly due to the sharp fall in oil prices. Based on current oil price expectations, inflation is likely to fall much more in the coming months.
Based on these data, “we remain more determined than ever to ensure supportive financial conditions in all sectors and in all countries to allow this unprecedented shock to be absorbed. We remain ready to make further adjustments to our monetary policy should we find that the size of our stimulus remains less than necessary”.
RECOVERY FUND AND PEPP
By mid-May, the European Commission should present the recovery fund on which the EU Council reached a preliminary agreement during the last meeting. “We are in favor of the recovery fund, indeed we believe it is absolutely necessary - said de Guindos -. Now the next step is up to the European council, on a proposal from the commission, to present the project of an instrument that is concretely useful given the situation we are going through, i.e. a shock and an unprecedented recession".
Sul Pandemic Asset Purchase Program (PEPP) the Spanish economist explained that “it is an emergency program related to the unprecedented shock we are facing. We have clearly indicated that we intend to use all the necessary flexibility to pursue our objective of avoiding the fragmentation of financial markets”. “Fighting the fragmentation of financial markets at the sovereign debt level – concluded de Guindos – is crucial because otherwise tensions would cascade down to the other levels with an inevitable tightening of credit, which would hinder the transmission of the monetary policy of the central bank".
