European Central Bank launches historic emergency plan to calm markets

A press conference by Christine Lagarde, President of the ECB, is viewed on the Frankfurt Stock Exchange in Germany on March 12.
A press conference by Christine Lagarde, President of the ECB, is viewed on the Frankfurt Stock Exchange in Germany on March 12. RALPH ORLOWSKI / REUTERS

The European Central Bank (ECB) announced a massive bailout on Wednesday March 18 to try to calm the markets. Unveiling its decision just before midnight, after a long emergency meeting of its board of governors, it decided to carry out share buybacks for 750 billion euros. This is six times more than the announcement on Thursday, March 12, which was not well received by investors.

Read also Coronavirus: stock market crash in Europe and on Wall Street, worst day in history for the Paris Stock Exchange

And contrary to the hesitations of last week, the tone is this time martial. “The board of governors will do whatever is necessary, within the limits of its mandate. [Il] is fully prepared to expand the securities purchase program and adjust its membership as needed and for as long as it takes. All options and bailouts will be considered to support the economy during this shock. “

Black day

On Twitter, Christine Lagarde, President of the ECB, made it even more explicit: “These extraordinary times require extraordinary action. There are no limits to our support for the euro. “ At this announcement, the American and Asian future markets rebounded, after a day that had been dark again.

This stroke of bazooka recalls the famous phrase of Mario Draghi, the predecessor of Mme Lagarde, who had calmed the panic in 2012 by declaring that he would “Whatever is necessary” ((“Whatever it takes”). Wednesday evening, ECB specialists applauded. “Impressive”, says Gilles Moëc, economist at Axa. “History”, adds Frederik Ducrozet, of Pictet private bank: “We couldn’t have hoped for better. “

Article reserved for our subscribers Read also Christine Lagarde’s professional misconduct

In detail, the ECB intends to complete these 750 billion share buybacks by the end of 2020. It will buy both government and corporate bonds. This program is in addition to the € 120 billion announced last week and the € 20 billion per month launched in the fall, for a total of € 1,050 billion for the next nine months. Never, even at the height of the single currency crisis, has the central bank injected so much money so quickly.

Fundamental action

Beyond this enormous liquidity, the ECB’s action is fundamental on another, seemingly technical point. After heated struggles in the governing council a few years ago, the central bank vowed never to hold more than 33 percent of a country’s debt stock. But with its repeat asset purchases for years, it was very close to this limit for some countries, including Germany and the Netherlands. It became difficult for him to act. The press release suggests that this ceiling will be removed, if necessary: “Insofar as self-imposed limits can slow down the action of the ECB (…), the Board of Governors will consider changing them. “

Leave a Comment