The European Central Bank’s acknowledgment late last year that it may not use all of its €1.85tn pandemic stimulus programme came as policymakers differed over its scale, according to minutes of the meeting published on Thursday.
ECB president Christine Lagarde steered the central bank’s governing council members to back a €500bn increase in the scheme in December via what the minutes called “an important shift”: describing the total sum as more of a moveable ceiling than a fixed target.
For the first time, the ECB said that if the total was more than required to keep borrowing costs low, it could leave some money unspent — although it also said the programme could be further expanded if needed. Some policymakers had argued that the expanded bond-buying plan would still be too small, while others said it was too big, according to the minutes.
The details of the discussions came as data published on Thursday demonstrated that Germany is rebounding faster than many of its neighbours, suggesting the eurozone’s largest economy probably avoided a double-dip downturn in the final quarter of 2020.
German gross domestic product contracted 5 per cent over the course of 2020, less than the 5.7 per cent decline it suffered in 2009 after the global financial crisis, according to the Federal Statistics Office.
Germany has suffered less from the pandemic than economists had expected, thanks in part to its resilience during a fresh upsurge in coronavirus cases in recent weeks.
“The lockdown we imposed at the start of November has had much less effect on the real economy than was the case in the spring,” said Peter Altmaier, the German economy minister. “That makes us optimistic that we can succeed in dealing with the pandemic over the next few weeks in such a way that we won't prevent an upturn in the economy.”
To cope with the eurozone’s highly uncertain economic outlook, ECB policymakers in December emphasised the importance of keeping its stimulus programme flexible, the minutes noted: “The focus on preserving favourable financing conditions implied a move away from a constant monthly pace of purchases towards adjusting the pace according to market conditions.”
It added: “This approach, combined with forceful communication, could allow the governing council to reduce the pace of purchases while having an equivalent effect on financing conditions.”
After the meeting, Ms Lagarde announced the ECB was expanding its pandemic emergency purchase programme to €1.85tn and extending it by at least nine months to March 2022.
The ECB has spent more than €750bn on bonds since it launched the emergency purchases in March, helping drive borrowing costs close to all-time lows for governments, businesses and households.
Some ECB council members last month argued for “a more moderate increase” in its main bond-buying programme to allow for “keeping some powder dry” for potential future increases.
“The argument was made that a further lowering of yields from their already highly accommodative levels could be expected to have only marginal effects on growth and inflation, while increasing the risks of unintended side effects, in particular for financial stability,” the ECB minutes said.
Richard Barwell, head of macro research at BNP Paribas Asset Management, said this was a “clear message that the ECB is running out of ammunition to support the economy, even if it can still support asset prices”.
However, other council members pushed for the programme to be increased by more than €500bn, arguing that the proposed “envelope was insufficient to ease financing conditions further and bring inflation closer to the governing council’s aim”.