ECB’s Holzmann: May Be Unnecessary to Deploy Entire PEPP Envelope

12 February 2021

By David Barwick – FRANKFURT (Econostream) – It may be unnecessary to deploy all of the €500 billion by which the European Central Bank expanded its pandemic emergency purchase programme (PEPP) in December, Governing Council member Robert Holzmann suggested on Friday.

In an interview given to Austrian medium News and also published on the website of the Austrian National Bank, which Holzmann heads, Holzmann said that in contrast to the volume of the PEPP envelope previously, the increase in December represented ‘an upper limit that can, but does not have to be spent.

‘That is a huge difference that means the crisis has progressed further and is not yet over, but that perhaps it will not be necessary to exhaust the money’, he said.

Holzmann rejected the idea the central bank would print money in perpetuity, as this ‘would eventually end in hyperinflation’. The ECB is providing liquidity that reaches governments and the economy, he said.

‘But that also means that government debt is rising, and even if interest rates are very low at the moment, there is an upper limit to the debts’, he said, citing a study suggesting that debt surpassing 90% of GDP provoked negative market reactions.

‘This limit has presumably shifted upwards because of the extremely low interest rates, but caution is warranted’, he added.

The expiry of government support measures could ‘possibly’ lead to increase corporate insolvencies, he said. Banks are in a good position to deal with the fallout, he said.