ECB’s Schnabel: Clear That We’ll Do What’s Needed Within Mandate

18 March 2020

18th March 2020 By David Barwick - FRANKFURT (EconoStream) – The European Central Bank’s Governing Council is unanimous in its resolve not to let anything hamper the transmission of its monetary policy, ECB Executive Board member Isabel Schnabel said Wednesday. In an interview with German weekly Die Zeit, a copy of which the ECB made available, Schnabel urged that the crisis be met by a robust fiscal response at the level of Europe. The ECB’s decisions of last week were “very comprehensive,” but the effect has been somewhat “masked” by market volatility and the package was not understood by all immediately, she said, drawing attention – like her Board colleague Fabio Panetta earlier in the week – to the flexibility of the asset purchase programme. Asked if the ECB had communicated its decisions poorly, Schnabel responded: “The decisive message of the programme should be clear: The ECB is ready to do everything within its mandate to counter market distortions that hamper monetary policy transmission, because monetary policy can’t function otherwise. On this, the entire ECB Governing Council is unanimous.” The ECB’s asset purchases contribute to market stability, Schnabel affirmed. If an absence of liquidity prevented monetary policy from being transmitted to the real economy, then the central bank should act, she said. In addition to keeping a close eye on financial markets, monetary authorities are also watching the banking system and investment funds, she said. Price declines due to the fire sale of assets by the latter must be prevented, she said. The lack of coordinated fiscal action to counter the economic crisis caused by the coronavirus is a problem, Schnabel said, urging a “strong joint response.” Although the last ECB staff projection calling for 0.8% economic growth this year in the euro area would have to be cut clearly, she said, she declined to predict an actual contraction. “The great uncertainty concerns how long the crisis lasts,” she said. The materialization of earlier hopes for a short, severe crisis depends on how quickly the disease is contained and how economic policy responds, she said.