ECB Policymakers Say 'More Determined' To Support Eurozone

European Central Bank Vice-President Luis de Guindos and Governing Council member Gabriel Makhlouf said separately on Thursday that the central bank was more determined to support the euro area economy during crisis periods and the bank stands ready to adjust all tools at its disposal, just days after the top German court ruled that the bank’s government debt purchases were in violation of its mandate.

“We remain more determined than ever to ensure supportive financial conditions across all sectors and countries to allow this unprecedented shock to be absorbed,” de Guindos said in his introductory statement, while presenting the Annual Report in the European Parliament.

“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.”

ECB policymaker and governor of the Irish central bank, Makhlouf said in an interview to Radio One that the German court ruling was not going to have any effect on the ECB’s actions.

“We are determined to respond forcefully to the challenges and to do whatever it takes to deliver our mandate,” he said.

“It [German court ruling] looks as if it runs counter to what the European Court of Justice indicated just over a year ago but the ECB itself acts very transparently,” the policymaker said.

Their remarks come just days after the German Constitutional Court ruled that the ECB acted beyond its power when it bought government debt worth more than EUR 2.1 trillion under its Public Sector Purchase Programme that ran from 2015 to 2018.

The court gave the ECB three-months time to explain why such a stimulus measure was necessary and to assess if it was proportional. If the ECB fails to give a satisfactory response in the given time, the court asked Bundesbank and the German government to withdraw from asset purchases under ECB scheme.

The latest flash estimate from Eurostat showed that the euro area economy contracted by 3.8 percent quarterly in the first quarter of 2020 that only partially reflected the impact of the lockdowns imposed to slow the coronavirus, or Covid-19, pandemic.

Citing consumer and business sentiment indicators for April, de Guindos said their sharp decline suggest an even larger contraction in the second quarter.

The ECB Staff has projected that Eurozone GDP could fall this year between 5 percent in a mild scenario and 12 percent in a severe scenario.

Makhlouf said the worst case scenario of 12 percent contraction in the euro area GDP seemed more “realistic”.

Inflation is expected to fall much further in the coming months, given the current oil price expectations.

“In this unprecedented environment, the decisive and targeted policy measures the ECB has taken since early March have provided crucial support to the euro area economy, notably to those sectors most exposed to the crisis,” de Guindos said.

“They support ample liquidity conditions, protect the smooth flow of credit to households and businesses, and preserve favorable financing conditions for all sectors and countries.”

De Guindos also stressed that it was important that fiscal policy played its role in supporting the economy and thus, complement monetary policy.

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