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The European economy is trapped because of the difficulties caused by a coronavirus. The European Central Bank (ECB) has started buying government bonds of member countries of the EU, so that they could allocate funds for financial assistance to citizens and business, however, this practice effectively blurs the boundaries between monetary policy, the ECB and the fiscal policy of national governments. This writes the Agency Bloomberg.
Pan-European regulator has faced this problem due to the fact that the most developed countries in the Eurozone such as Germany and the Netherlands are opposed to the issuance of common European bonds, the money from which could be directed at solving the problems caused by the pandemic. Rich countries are not prepared to bear the single responsibility for all and is ready to discuss only the credit mechanisms.
The ECB is forced to help the European economy by buying in the market of government bonds of member countries. A vivid example of Italian bonds, the yield and the riskiness from the beginning of the epidemic have increased dramatically. To stabilize the situation, the ECB spent on buying up Italian debt billions of euros, but even these investments are not allowed to hold paper — the yield still rose sharply and reached 1.8 per cent per annum. Currently on buying government bonds the ECB has allocated 750 billion euros, the regulator has announced that it is ready to spend another 500 billion on top.
Even such large-scale assistance program will not allow the ECB to solve the main task — to accelerate inflation, and with it economic growth within the Eurozone. Analysts note that in the present circumstances to adapt the program for all Euro-area members extremely difficult, plus the method of aid — in fact, issue a new currency under the debt — not always successfully work.
In particular, they cite the example of Japan, where the level of debt exceeds the GDP doubled, but, even there, to wait for inflation had for a very long time. Moreover, the high risks that countries like Italy, whose debt level has already reached 160 percent of GDP, and France and Spain will begin to experience real problems with maintenance obligations. The task is extremely complex — it is necessary to find a balance between sufficient support for the economy and retain adequate levels of public debt.
Analysts also noted that the current head of the ECB, Christine Lagarde, will have more difficult than its predecessor, Mario Draghi, which for growth has launched a massive quantitative easing program, money from which also the ECB buying bonds of European countries. Then the task was easier — billions of dollars in loans were given in exchange for the implementation of the programs, which ultimately were to lead to lower debt levels and economic growth. At the present time, Lagarde will not be able to conduct a similar exchange agreements with national governments, as they will not be able to deny funding.
“The problem is that the end justifies the means. The ECB knows that if he will not pursue a policy of assistance to members of the Eurozone, in the end, this can lead monetary unification and the Euro to collapse,” — said a senior economist at the European market in the Jefferies marchel Alexandrovich.
Major economies faced besprecedentnym collapse of business activity on the background of the pandemic coronavirus. USA, UK, Germany and other countries already recognize that the force of impact on the economy comparable to the times of the great depression and the Second world war. Most of the countries to combat the economic consequences of launching a program of quantitative easing and lowering of the key rate, flooding the economy with cheap money.
Video, photo All from Russia.