What’s the ECB doing in response to the COVID-19 crisis?

The European Central Bank (ECB) is the analog to the Federal Reserve for the euro area, the 19 European nations that share a common currency, the euro. Its primary mandate, set by treaty, is to maintain price stability. It also supervises 115 major banks in the eurozone, which account for more than 80 percent of all banking assets.

The eurozone economy differs from the U.S. in important respects. In contrast to the U.S., there is no eurozone-wide fiscal policy and there is no eurozone-wide government bond akin to the U.S. Treasury bond. In addition, a much larger fraction of all credit (about 80 percent of the total) in the eurozone goes through the banking system because Europe’s capital markets aren’t as large or robust as those in the U.S. (where banks account for only 20 percent of the financing for non-financial corporations).

Like the Fed, the ECB has responded to the COVID-19 pandemic by pledging to lend freely and stepping up its purchases of government debt. “Extraordinary times require extraordinary action,” said Christine Lagarde, the ECB president. “There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.” But the governance of the ECB and the political environment in which it operates differ from those of the Fed, and at times have complicated the ECB’s response to the crisis.

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Πηγή: brookings.edu