The ECB turns its arsenal into a time machine to make room for the vaccine

Monument to the euro in the former headquarters of the ECB in Frankfurt.

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ING’s global head of macroeconomics, Carsten Brzeski, is clear on this. What Lagarde has done with her team has been “Bridge in time for herd immunity”, he assures in his analysis. In addition, he adds that the institution “has not presented a great new bazooka, but a well-designed extension of all known instruments.”

With the hope that in the spring of 2022, group immunity thanks to the vaccination of the population will be a reality. A kind of guarantee in the time collected in the same ECB statement which, according to Samy Chaar, Lombard Odier’s chief economist, also has the role of “Limit” from now on “the economic damage of the second wave” in which the Eurozone is immersed.

Loss of impact

Buy time instead of more bonuses. That’s the idea that Andrew Mulliner, manager of Janus Henderson’s fixed income team, insists on. He considers that once “the massive wave of monetary and fiscal stimuli” of the peak of the outbreak of the pandemic is overcome, “the figures begin to lose their impact.” Instead, he notes the announced extensions have already started to do their job.

In a session where several sovereign bonds were preparing to enter in a block in negative interest territory, including the Spanish, Mulliner emphasizes that “the markets absorbed the news well and the bonds returned part of their gains.” In summary, he assures that although “the lack of an enthusiastic response from the markets is a bit disappointing, lack of volatility indicates that the ECB’s credibility is intact”.

Slow down the pace

From Western Asset, the firm specializing in public debt of the US manager Franklin Templeton, analyst Andreas Billmeier, points out that Lagarde’s ECB has managed to “transfer the image of a central bank that seeks to reduce uncertainty for the private sector [mientras] clearly indicates your willingness to slow down your purchases”.

A third change that is not just by conviction, much less as a pilot test. The latest operational data from the ECB had already been pointing to him. Some more leisurely shopping in the secondary market with rates and risk premiums at bay and some TLTRO III auctions that made it clear that the need for liquidity is getting smaller in the market as the -still fragile- economic recovery progresses.

And even more than that, Annalisa Piazza, fixed income analyst at MFS Investment Management, points out that with a term extension “a little longer than expected”, the ECB also manages to buy time to “act as a ‘bridge’ with which to smooth the return to normality of the economy while maintaining the current favorable financing conditions ”.

European funds

A transition in which activation of economic reconstruction mechanisms They must also play the key role that Lagarde and his team have been demanding from the euro countries for months.

In this sense, Azad Zangana, senior economist for Europe at Britain’s Schroders, notes that “it seems that the ECB does not want its stimulus to lose steam before EU governments have had a chance to make use of the EU recovery fund ”, which finally saw the light also this Thursday after some bitter negotiations with Hungary and Poland.

Now it remains that the community and each State bureaucracy don’t become an obstacle or a client network that hinders the good use and use of these funds. Thus, the time bought by the ECB will take effect. Counting on the period that has been given for the reinvestment of maturities, up to three more years from now, on the ninth anniversary of the introduction to your toolbox of liquidity auctions to which the contract has also been renewed.

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