ECB’s Centeno: Crisis Measures Temporary, But Can’t Remove Too Soon

11 September 2020

By David Barwick – FRANKFURT (EconoStream) – European Central Bank Governing Council member Mario Centeno on Friday stressed that measures taken to respond to the crisis must be temporary, but cautioned against removing them too soon.

In remarks at the Eurofi Financial Forum 2020, Centeno, according to a text made available by the Bank of Portugal, which he heads, said that risks are still elevated and that if the crisis becomes financial in nature, the situation could worsen.

‘[L]et me stress the temporary nature of the monetary and fiscal measures in response to the temporary crises’, he said. ‘However, their premature withdraw[al] can be detrimental to the rebound of our economies. We need to keep them for as long as they are needed.’

Economic activity turned out better than expected in 2Q and will benefit from a further rebound in the current quarter, he said. ‘However, risks are still very high and their impact may be amplified if this turns financial’, he warned.

The decisive monetary and fiscal policy measures taken to date are the foundation of economic agents’ expectations and decisions, Centeno said. It is therefore important that ‘[g]oing forward, policy makers cannot defraud them because the work is far from complete.’

In particular, he said, the ECB’s pandemic emergency purchase programme (PEPP) should continue to be implemented with the necessary flexibility, while Next Generation EU funds should be deployed efficiently.

‘The “whatever it takes” stage must be followed by the “whatever is worth”’, he said. ‘Reallocation is necessary, but conditions should be provided for it to increase efficiency and growth.’

Authorities need to ensure that the financial system continues to work properly and in particular that the monetary policy transmission mechanism functions.

‘This cannot morph into a financial crisis’, he said.