The euro zone economy is at a turning point. ECB President Christine Lagarde told Politico in an interview that its recovery must be firm and sustainable before the European Central Bank can debate clawing back emergency support.
The ECB had agreed to maintain an elevated pace of bond purchases. This is to keep borrowing ultra-low costs. Policymakers did not encourage questions about tapering support, even as growth rebounds faster than earlier predicted. Lagarde quoted that she was not suggesting that the pandemic emergency purchase program (PEPP) is going to stop on 31 March. She added that they have plenty of flexibility. In other terms such as of economic outlook they are heading in the right direction. When asked about winding down the 1.85 trillion-euro PEPP, that is scheduled to last at least until March 31 or until the crisis phase of the pandemic is over, she refused to say anything stating that it is too early to debate these issues this early.
In their September meeting the ECB is expected to start discussing the end of PEPP. This is expected mainly by the economists. The vast majority of ECB watchers do not expect PEPP to be enlarged and extended again. Instead, the ECB is more likely to shift policy support to an older and more rigid Asset Purchase Program. Lagarde added that they are at a turning point where, bearing in mind alternative (virus) variants, they are on that recovery path, heading firmly towards a return to the pre-pandemic level.
