ECB Is Flexible and Could Do More If Needed, Officials Say

(Bloomberg) -- The European Central Bank could take further action if needed to support the euro area through the economic crisis sparked by the coronavirus outbreak, policy makers at the institution said.

The central bank has already unleashed a barrage of support over the past few weeks to cushion countries across the bloc, including committing to spend more than 1 trillion euros ($1.1 trillion) on public and private debt this year. Yet even with such an unprecedented monetary boost, tensions are growing on markets and policy makers expect inflation will likely remain below the ECB’s 2% target for a long time.

“We’ve already done an enormous amount,” Bank of France Governor Francois Villeroy de Galhau said in an interview with the Journal Du Dimanche newspaper. “If it were necessary to do more to fulfill the price stability mandate the treaties have set us, then, completely independently, we will do more.”

In a separate interview with Portuguese weekly paper Expresso, Vice President Luis de Guindos said the ECB is “keeping open mind in terms of how to respond to further developments and tensions within the markets.”

The hints of flexibility in the ECB’s crisis response could help to reassure investors who have begun testing the central bank’s resolve. Strains in markets reemerged last week with sales of Italian and Spanish debt pushing up borrowing costs for the two countries compared to Germany.

“We are going to remain vigilant,” de Guindos said. “We have a new instrument -- the Pandemic Emergency Purchase Program -- and we can use it flexibly in terms of timing and the assets we purchase.”

It will be “hard” for the economy to recover in the second half of 2020, and for 2021 to make up for this year’s downturn, de Guindos told the newspaper. The ECB’s efforts are focused on preventing the crisis caused by the coronavirus outbreak from becoming a debt crisis, he said.

“Nobody imagined this crisis,” Villeroy said. “It is totally unprecedented in its form and worse than previous crises.”

Both de Guindos and Villeroy pushed for governments to do more to supplement monetary policy with fiscal spending. That could include European investment programs and the possibility of a European recovery fund that countries are expected to discuss this week.

“Europe has been hit together; it will get out of this together,” Villeroy said.

Read more: ECB Is Back at Crisis Front Line in Echo of Past Debt Sagas

On other measures that European governments can take, such as so-called coronabonds, de Guindos told the newspaper said the ECB “has always been in favor of the existence of a fiscal instrument at the European level that can complement monetary policy.”

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