ECB’s de Guindos: Open-Minded on How to Handle Further Tensions

18 April 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank is not pre-committed to any particular response to a worsening of the current situation, ECB Vice President Luis de Guindos said in a newspaper interview on Saturday.

Speaking to Portuguese weekly Expresso, de Guindos reiterated his expectation that a post-pandemic economic rebound would not fully compensate for the present downturn.

Asked whether the ECB was prepared to expand its Pandemic Emergency Purchase Programme (PEPP) or take other action, de Guindos said the Governing Council was “keeping an open mind in terms of how to respond to further developments and tensions within the markets,” and was “completely committed to maintaining stability in the financial markets and to avoiding” fragmentation.

The ECB is “concerned about a combination of problems: a deep recession, a huge impact on public finances and an increase in funding needs,” given the resulting tensions in the sovereign debt market, he said. The flexibility of the PEPP is “why I hope we can deal with this situation.”

While stressing the temporary nature of the economic impact, the latter would be so “huge” that even with a hoped-for return to growth in the second half of 2020, developments through 2021 would be unlikely to offset the ongoing contraction completely, he said.

De Guindos described the Eurogroup’s recent decisions as “a commitment that goes in the right direction.” With respect to so-called coronabonds, “we are in favour of it, we think it would be a good thing for the euro area,” he said, adding that it was a political decision and noting the upcoming meeting of the European Council.