Coronavirus stimulus must remain flexible


The Governor of the Central Bank of France, François Villeroy de Galhau, watches as he attends the annual meeting of the World Economic Forum (WEF) on January 26, 2018 in Davos.


The European Central Bank (ECB) should not have to take into account the size of a country’s economy when buying government bonds as part of its stimulus package, said a member of the central bank at CNBC.

The remarks of the Governor of the Banque de France, François Villeroy de Galhau, come after the German Constitutional Court said earlier this month that the ECB should keep this link to avoid the risk of market distortion.

The ECB has purchased large amounts of government bonds as part of its broader efforts to mitigate the economic fallout from the coronavirus crisis. Its pandemic emergency purchase program (PEPP), announced in March, will enable it to buy 750 billion euros ($ 818 billion) by the end of the year. However, the program is different from other bond buying initiatives, where the central bank links its monthly purchases to the size of a country’s economy.

Speaking to CNBC on Tuesday, de Galhau said the stimulus package should remain flexible.

“We are open to volume, we are open to the end date – which is linked to the end date of the Covid crisis, and in any case not before the end of this year. But more importantly, if we are to ensure the maximum effectiveness of PEPP, we should not be tied to capital keys, “he said.

“Some central banks should be able to buy more and others should be able to buy less. If that is necessary to prevent unjustified fragmentation, unjustified market dynamics or liquidity gaps that we may have in the market. ”

The German court decision concerned a separate stimulus program from the ECB.

De Galhau’s comments follow a speech on Monday in which he said the ECB will likely have to do more to keep the eurozone afloat.

In addition to the ECB’s stimulus package, European governments are also working on additional plans to support the region as it faces the deepest crisis since the 1930s.


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