ECB could increase PEPP and APP

By Hans Bentzien

FRANKFURT (Dow Jones) The European Central Bank (ECB) could increase both its pandemic purchase program PEPP and its classic QE program APP at its council meeting on December 10, according to a report by the Reuters news agency. As Reuters reports, citing several people familiar with the current discussions, there is resistance to a single PEPP increase because this program reduces the incentive for southern European countries to take out EU loans for the digital and “green” transformation of the economy. At the end of October, the ECB Council announced that monetary policy would be eased in December due to the second corona wave.

According to four informed persons, there is currently a discussion as to whether the ECB should top up the PEPP or the APP. The PEPP gives her great freedom in choosing the bonds to buy. The ECB has thus succeeded in significantly reducing the financing costs of countries such as Spain and Portugal.

As a result, these countries are not ready to take out earmarked “next-generation loans” from the EU. No country has yet applied for such loans, and Spain and Portugal have indicated that there is no rush to do so. Some Governing Council members therefore fear that these countries will not use the money they borrowed cheaply productively.

According to the informed persons, a compromise could be to raise both the PEPP and the APP, in which the ECB has to buy bonds according to the capital key. In the opinion of some Council members, an extension of the PEPP beyond June 2021 would no longer be appropriate. “This E in the PEPP is there for a reason,” said a council member, referring to the word Emergency.

However, other council members are of the opinion that the euro area is still in the acute pandemic phase and that a continuation of the PEPP is justified.

Contact the author: [email protected]

DJG / hab / apo

END) Dow Jones Newswires

November 04, 2020 06:17 AND ( 11:17 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

–