Guindos Says ECB More Determined Than Ever to Help Economy
Guindos Says ECB Is More Determined Than Ever to Support Economy
(Bloomberg) --
The European Central Bank is “more determined than ever” to support the euro-area economy after the deadly coronavirus forced businesses shut and plunged the 19-nation region into its worst recession in decades, Vice President Luis de Guindos said.
“We continue to stand ready to make further adjustments to our monetary policy measures should we see that the scale of the stimulus is falling short of what is needed,” he told the European Parliament’s Economic and Monetary Affairs Committee in a video conference on Thursday. “Looking ahead, we are faced with a cloud of uncertainty about the course of the pandemic and the economic damage it will leave behind.”
The comments came one day after the European Commission offered a dire outlook for the year, underlining an urgent need for support. A projection for a slump in the euro area of 7.7% was accompanied by a blunt warning that without some form of common rescue plan, the region’s very stability is at stake.
Guindos stressed that the uncertainty connected to current forecasts is “huge” because it’s unclear how the outbreak develops. The economic contraction in the second quarter could be double or triple the almost 4% drop in the first three months of the year, he said. That should be followed by a rebound in the second half that continues in 2021.
ECB policy makers have already added a 750 billion-euro ($810 billion) bond-purchase plan and new bank-lending programs to their toolkit, and Guindos reiterated their promise to offer more stimulus if warranted. Still, he said it’s “vital” that the fiscal response to the crisis “is sufficiently forceful, in all parts of the euro area.”
Legal Challenges
In what appears to mark another challenge for the ECB’s actions going forward, Germany’s Constitutional Court this week raised doubts over an older but ongoing asset-purchase program. Its ruling challenged policy makers to provide an assessment on whether the controversial program, launched in 2015, is justifiable in proportion to its side effects.
Irene Tinagli, chairwoman of the Economic and Monetary Affairs Committee, introduced Guindos’s remarks with a lengthy acknowledgment of the ECB’s independence and its efforts to explain its decision to citizens. The vice president commented on the ruling by highlighting the central bank’s conviction to meet its price-stability mandate.
“We are accountable, we have to respond to you, to the EU parliament, you are the representatives of the European people,” he said. “There is an important amount of analysis on decisions we take.”
The ECB has been weighing the side effects of monetary policy “continuously,” Guindos said, adding that with each decision, “there is a sort of proportionality assessment in terms of the documents, in terms of the analysis, in terms of the research that we carry out.”
Asked about the state of European banks, the vice president said while the sector is well capitalized, long-lingering structural problems like low profitability will become more acute due to the current crisis. “Consolidation is something we should look at with much more interest because I think this is the real way forward,” he said.
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