FRANKFURT (Reuters) – European Central Bank President Christine Lagarde had to fight hard to pull off a compromise on new measures to support the eurozone economy, but her fight against supporters of strict monetary orthodoxy has failed. no doubt that to begin.
The ECB announced Thursday that it was increasing by 500 billion euros, 1.850 billion, the envelope of the emergency purchasing program in the face of the pandemic, the PEPP, which has become the main instrument of its policy of reducing funding costs. States and companies, which it also extended by nine months, until March 2022.
The Frankfurt institution announced at the same time that the very favorable terms of its target longer-term refinancing operations (TLTROs), liquidity loans to banks supposed to favor credit, would apply for an additional year, i.e. until June. 2022.
The meeting of the Governing Council was however stormy, the proposals of the ECB’s chief economist, Philip Lane, not being unanimous, according to five sources inside or close to the ECB.
Some decision-makers have notably contested the size of the increase in the PEPP envelope as well as the modalities retained for the granting of TLTROs, according to these sources.
Christine Lagarde intervened to orchestrate an agreement with a few concessions, notably by ensuring that the PEPP envelope would not necessarily be spent in its entirety.
This envelope could be increased but this would require a new decision by the Board of Governors, according to the sources.
“It is no longer an envelope but a ceiling, a maximum amount,” said one of the officials heard by Reuters.
AN “INDICATIVE” AMOUNT
Franois Villeroy de Galhau, member of the Board of Governors, returned to this point on Friday, citing an “indicative” amount that can be reduced or increased as needed.
Discussions began informally last week with a first proposal for an additional 750 billion euros, which was then reduced to 500 billion euros, according to two sources.
Christine Lagarde is a follower of compromise and thus distinguishes herself from her predecessor, Mario Draghi, on whom her supporters criticized for imposing her views.
However, the President of the ECB has not finished with the “hawks”, reluctant towards an excessively accommodating monetary policy.
Some of them criticize it in particular for acting to control the yield curve and insist on the need to withdraw support measures once the health crisis is over.
Even the TLTROs, yet considered until now as the most consensual tool within the monetary arsenal of the ECB, are now debated, which suggests that Christine Lagarde will need all her political experience to reconcile the supporters of maximum stimulation, in other words the “doves”, and the camp of the “hawks”.
(French version Patrick Vignal, said by Blandine Hnault)
by Francesco Canepa, Balazs Koranyi and Frank Siebelt
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