ECB’s coronavirus stimulus must remain flexible, Banque de France governor says

CNBC reports that member of the ECB said that the European Central Bank (ECB) should not need to take into account the size of a country’s economy when buying government bonds as part of its stimulus program.

The comments by Banque de France Governor François Villeroy de Galhau come after the German constitutional court said earlier this month that the ECB should keep that link to avoid the risk of distorting markets.

The ECB has been buying large amounts of government bonds as part of its wider effort to mitigate the economic fallout from the coronavirus crisis. Its Pandemic Emergency Purchase Program (PEPP), announced in March, will see it 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 Tuesday, de Galhau said the stimulus program should remain flexible.

“We are open on the volume, we are open on 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 still more, if we want to guarantee the maximal efficiency of PEPP, we should not be bound to capital keys,” he said. 

“Some central banks should be able to buy more; and others to buy less. If it’s needed to prevent unwarranted fragmentation, unwarranted market dynamics or liquidity gaps which we could have in the market.”

The German court ruling was on a separate ECB stimulus program.

De Galhau’s comments follow a speech Monday in which he said the ECB will probably have to do more to keep the euro zone afloat. 

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