Europe’s Pandemic Emergency Purchase Programme (PEPP)? What is it?
European Central Bank(ECB) has committed to put €1.35 trillion in the form of a temporary asset-buying program, purchase of which will continue till 2022 to ensure protected recovery duration.
On 18th March 2020, ECB made an announcement in regard to their part of stimulus package, considering the fathomless pressure that many European countries are facing due to their high cost of borrowings like Italy, Spain, Greece and the pressure that ECB was facing, in falling short of measures, compared to the FED in the United States.
Pandemic Emergency Purchase Programme, which is referred to as PEPP, targets to mitigate enormous economic and financial risks to the Eurozone caused by the Coronavirus pandemic, by pumping money in the European capital markets which have been deeply affected by the turmoil in the form of temporary asset purchase programme of private and public sector securities.
Initially, when the plan was announced in March, the amount was €750 billion and the investment period was till the end of 2020. But, considering the experts complains in regard to the plan falling short of long-term stability. In early June, ECB’s Christine Lagarde announced further €600 billion addition, with an extension of investment period till 2022.
During an press conference, Christine Lagarde noted that PEPP has prevented downward spirals in financial markets and reduced retail risk, absence of which could have resulted in a serious situation both in terms of growth and inflation outlook.
Two factors that she highlighted in regard to the increment in the amount and the investment extension are as follows:
- Outlook for the price stability have been significantly affected by the fallout from the COVID-19 crisis.
- Financial Conditions for the euro-area as a whole are significantly tighter today as measured by average sovereign yields and broader metrics for financial tightness.
Considering these factors, the major goals for PEPP is to get on the Pre-COVID inflation track and safeguard the aggregate financial conditions.