Policy reactions to the Eurozone crisis

INTERVIEW

Interview with La Repubblica

Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Tonia Mastrobuoni and published on 11 May 2020

• 11 May 2020 The German Constitutional Court said that the ECB's public sector purchase programme (PSPP) is partly unconstitutional.
• The ECB is a European institution, meaning that the European Court of Justice has exclusive jurisdiction over the ECB and its actions.
• Is it dangerous if a national court declares a verdict of Europes highest court to be ultra vires, or illegitimate?
• It is not for me to judge the legal aspects of the verdict, but its implications can clearly go beyond the ECB.
• The ECB foresees a very strong contraction of the eurozone economy in the worst-case scenario; up to 12% for this year.
• Christine Lagarde spoke of an economic contraction of a magnitude and speed that is unprecedented in recent history.
• So why did the ECB last week focus mainly on helping banks instead of increasing its coronavirus stimulus programme?
• Yes, we are indeed facing a very deep economic crisis, on top of a humanitarian crisis, which has hit Italy particularly hard.
• The ECB has responded forcefully and swiftly in order to mitigate the economic and financial fallout from the crisis.
• We have adopted a very broad set of measures, including additional asset purchases under the asset purchase programme (APP) and under the new PEPP.
• The PEPP gives us ample flexibility to allocate our purchases across time, asset classes and jurisdictions.
• We are using this flexibility to make sure that our monetary policy is transmitted to all euro area countries.
• But the euro area economy is largely bank-based, also in Italy where small and medium-sized enterprises (SMEs) play an important role.
• As a package, these measures reinforce each other and support both European households and firms in these very difficult times.
• What do you expect now from the banks, after the decisions you took at the last Governing Council meeting?
• In addition, we introduced a new set of operations last week the pandemic emergency longer-term refinancing operations, or PELTROs.
• This programme has an ample degree of embedded flexibility, and it is the right tool to deal with the current crisis.

• PRESS RELEASE

  ECB announces new pandemic emergency longer-term refinancing operations

  30 April 2020

  The Governing Council of the European Central Bank (ECB) today decided to conduct a new series of seven additional longer-term refinancing operations, called pandemic emergency longer-term refinancing operations (PELTROs).

• These operations will provide liquidity support to the euro area financial system and contribute to preserving the smooth functioning of money markets by providing an effective backstop after the expiry of the bridge longer-term refinancing operations (LTROs) that have been conducted since March 2020.
• The interest rate will be 25 basis points below the average rate applied in the Eurosystems main refinancing operations (currently 0%) over the life of the respective PELTRO.
• The first operation will be announced on 19 May, allotted on 20 May and settled on 21 May 2020.