ECB’s Panetta: Price Stability Mandate Dictated Adjustment of PEPP

12 June 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank’s mandate to ensure price stability compelled its decision last week to adjust the parameters of the pandemic emergency purchase programme (PEPP), ECB Executive Board member Fabio Panetta said Friday.

In a blog post on the ECB website that was also published as an opinion piece in the Financial Times, Panetta made the comment in the context of an exposition on enhancing the international standing of the euro.

Monetary policy is one part of a dual policy response to ensure a better sharing of the advantages of the euro across the area, in turn buttressing its wider use, he said. Standing behind a global currency must be a central bank that can be counted on to guarantee liquidity conditions and prevent procyclical tightening during a crisis, he said.

These exigencies were ‘key motivations’ in establishing the PEPP, he said. The decisions the Governing Council took last week to boost its volume by €600 billion to €1.35 trillion and to extend the programme until at least June 2021 ‘were dictated by the ECB’s mandate, which obliges it to intervene as necessary to achieve its price stability objective’, he said.

Being responsible for a global currency also means activating swap and repo lines to other central banks during a crisis, he said. The ECB has already done so in recent months and ‘will go further if warranted’, Panetta said.

Policy must also mitigate the skewing of benefits accruing from the euro’s global role in favor of those member states that issue assets seen as safe in times of crisis, he said. This can be accomplished by appropriate joint European instruments, he said, praising proposals for a €750 billion recovery fund as ‘an excellent example’ that ‘will provide the building blocks for a deep, common capital market backed by safe euro assets.’

However, the recovery fund is too temporary and too small relative to the European sovereign bond market ‘to truly shift perceptions of the euro’, he said; ‘investors will have to be confident that this type of action can always be expected in times of great need.’