The ECB is amending some of the rules that have until now governed its asset purchases
in November intent on peacemaking. The bank’s negative interest rates and bond-buying were reviled in the euro area’s northern countries. In order to heal the rift Ms Lagarde launched a year-long review of theCovid-19 upended all that. On March 18th theannounced an emergency asset-purchase scheme that would buy €750bn in government and corporate bonds.
Even with all this flexibility, there is still a question of whether the stimulus is sufficient. The extent of the economic damage done by the virus is slowly becoming clear. On March 24th a survey of purchasing managers indicated the steepest drop in activity in its 22-year history. Investors’ medium-term inflation expectations, as measured by the five-year forward swap rate, have fallen to 0.8%, well below the bank’s target of inflation close to, but below 2%.
One reason for investors’ gloom may be that governments are still doing too little. Even after Germany’s splurge, new spending across the euro zone amounts to only 2% of. Economists at Citibank estimate that something nearer 5% is warranted. Leaders were set to consider whether to make cheap credit lines available to governments through the zone’s bail-out fund afterwent to press. Such talks tend to become mired in arguments over what type of strings should be attached to the cash.
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