ECB’s Kazimir Urges Faster Fiscal Response as Bond Yields Curbed

The European Central Bank is shielding the euro-zone economy from higher bond yields partly because the region is rolling out its fiscal stimulus too slowly, according to policy maker Peter Kazimir.

While the rise in euro-area government bond yields this year isn’t “dramatic for now,” the Slovakian central bank governor said the ECB wanted to shore up confidence that the region wouldn’t suffer from higher borrowing costs sparked by the $1.9 trillion U.S. fiscal package.

“My concern is that, compared with the enormous U.S. fiscal impulse, the effects of the European one will kick in with a major delay -- we’re talking months and years,” Kazimir said in an interview. “The joint fiscal reaction is lagging behind and needs to pick up its pace to support the recovery.”

ECB’s Kazimir Urges Faster Fiscal Response as Bond Yields Curbed

The ECB pledged last week to “significantly” boost the pace at which it buys debt under its 1.85 trillion-euro ($2.2 trillion) pandemic program for the next three months. The move aims to ensure financing conditions remain favorable across the 19-nation currency bloc.

Kazimir said the decision was “a reaction to the spillover of the market move triggered by the approval of the U.S. fiscal package,” and that the intention is to prevent widening discrepancies between economic fundamentals and higher borrowing costs.

In contrast to the U.S., the European Union’s joint 750 billion-euro pandemic recovery fund has yet to hand out cash and is running into trouble, with the union’s executive arm judging that most national spending plans submitted so far still need work to get approved.

ECB’s Kazimir Urges Faster Fiscal Response as Bond Yields Curbed

The result could be a delay in disbursements, an additional challenge for an economy already recovering slower than its global peers amid extended virus lockdowns and a slow vaccination campaign.

For money from the 750 billion-euro fund to be distributed this summer as planned, euro-area governments need to win approval for their proposals by the Commission and a weighted majority of European Union member states in April.

The currency bloc is now embroiled in more chaos after several EU member states decided to suspend vaccinations with AstraZeneca Plc’s shots over fears of life-threatening clotting incidents. That could mean business restrictions lasting longer, at a potential cost of tens of billions of euros to the economy.

Still, Kazimir struck a note of optimism by echoing his colleague Martins Kazaks, the head of Latvia’s central bank, who said last week that the ECB won’t need to keep downward pressure on bond yields forever.

“With a gradual economic revival, and with generally improving situation, the market rates will naturally react,” Kazimir said. “What’s important is that such an increase reflects economic fundamentals and that there aren’t some speculative, unwarranted moves.”

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