The Wall Street Journal - 20.03.2020

THE WALL STREET JOURNAL. Friday, March 20, 2020 |A

LONDON—The Bank of Eng-
land cut its benchmark inter-
est rate to a record low and
said it would buy £200 billion
($232 billion) of U.K. govern-
ment bonds, the latest in a
flurry of central-bank action
to combat the economic dam-
age form the coronavirus.
At an emergency meeting,
policy makers concluded that
further stimulus was needed to
ease growing financial strain
and support growth and infla-
tion, the BOE said Thursday.
Officials voted unanimously
to cut the BOE’s benchmark
rate to 0.1% from 0.25%, just a
week after announcing a half-
percentage-point rate reduc-
tion and a new program to
support lending to small and
midsize businesses. They also
agreed to increase the size of
the BOE’s bond portfolio to
£645 billion, from £445 billion.
“We are in an absolutely
unprecedented situation,”
Bank of England Gov. Andrew
Bailey said. He said officials
acted outside their normal
schedule following a selloff in
sterling, U.K. government
bonds and other assets in tu-
multuous trading this week, fi-
nancial strains that were
pushing up borrowing costs
and sapping credit for busi-
nesses and households.
He said officials expect the
U.K. to suffer a sharp contrac-
tion in output as the virus
takes its toll and that the BOE
is ready to go further if more
stimulus is required. “No, we’re
not done,” Mr. Bailey said.
The European Central Bank
on Wednesday unveiled a new
€750 billion ($799.7 billion)
bond-buying program.
The Federal Reserve on
Thursday said it would expand
its program to lend dollars to
nine additional central banks
to alleviate strains in financial
markets.

BYJASONDOUGLAS

BOE Cuts

Key Rate,

Plans to

Buy Bonds

shock of the coronavirus have

already suffered from a series

of communication errors and

mishaps that have pushed up

borrowing costs for the re-

gion’s struggling governments.

Some investors worry the

former French finance minis-

ter will act less decisively than

the ECB president she suc-

ceeded in November, the Ital-

ian Mario Draghi.

On an emergency telecon-

ference call that started at

7:30 p.m. local time Wednes-

day, ECB officials all agreed

that they needed to do some-

thing big, the people familiar

with the matter said. Yields on

Southern European debt were

shooting up toward levels last

seen during the region’s debt

crisis a decade ago, reviving

fears about the future of the

currency union, as markets

fretted over how the region’s

indebted governments would

finance surging costs related

to the coronavirus.

Despite the concerns raised

by the three central bank

chiefs from Austria, the Neth-

erlands and Germany, the ECB

agreed to go ahead with the

plan put forward by Ms.

Lagarde, who previously

THE CORONAVIRUS PANDEMIC

sought to bridge internal divi-

sions over the bank’s broader

strategy since taking over as

president. The Austrian, Dutch

and German central banks de-

clined to comment.

Their concerns, the people

familiar with the discussions

said, revolved around at least

two aspects of the bond-buy-

ing program.

The first was its scale,

which at €750 billion would

allow the ECB to buy almost

€120 billion a month of euro-

zone government and corpo-

rate debt this year, the highest

sum ever. Some officials would

rather have seen a lower

amount, the people said.

Some officials also raised

concerns on the call about the

ECB’s suggestion that it could

change its usual self-imposed

limits on bond purchases to

give it more room for maneu-

ver. Normally, the ECB is re-

stricted to buying only a third

of any government’s debt. The

limit, a longstanding safe-

guard, is backed by the Euro-

pean courts.

In addition, the new pro-

gram gives the ECB more flex-

ibility to focus on buying the

debt of Southern European

governments, softening re-

quirements that it only buy

bonds in proportion to the

size of each eurozone econ-

omy. That is likely to raise

hackles in Germany, where top

officials regularly berate the

ECB for bond purchases they

view as subsidizing spend-

thrift governments.

Still, Ms. Lagarde’s plan is a

shift after financial markets

were disappointed last week

with her initial €120 billion

bond-buying program to sup-

port eurozone economies.

“At least the ECB is getting

into a ballpark which is more

meaningful,” said Nick Kounis,

an analyst with ABN Amro in

Amsterdam.

He estimates that €750 bil-

lion is roughly double the

amount of new spending that

eurozone governments might

be expected to make this year

to fight the virus, and could

add around 0.5% to the re-

gion’s gross domestic product.

FRANKFURT—As Christine

Lagarde races to reassure fi-

nancial markets she will do

whatever it takes to stop the

eurozone from unraveling, she

is facing internal opposition to

the European Central Bank’s

massive new bond-buying pro-

gram, a central plank in her

strategy to cope with the eco-

nomic impact of the coronavi-

rus pandemic.

The €750 billion ($799.7 bil-

lion) Pandemic Emergency Pur-

chase Program initially placated

investors. But the features that

helped calm markets—its scale

and flexible buying limits—

could raise concerns among

lawyers and politicians, espe-

cially in Germany, the euro-

zone’s largest economy, and end

up undermining Ms. Lagarde’s

first big initiative since becom-

ing president of the ECB.

People familiar with the

matter said not all of the

ECB’s 25-member rate-setting

committee agreed to the pro-

gram Ms. Lagarde laid out on

Wednesday. At least three se-

nior officials—the heads of the

Austrian, Dutch and German

central banks—raised concerns

about its central features, they

said.

In the coming months, Ms.

Lagarde will have to answer a

number of awkward questions,

namely: Will the bank lift lim-

its on the types and quantities

of securities it will buy? How

aggressively will she support

Southern European govern-

ments, which so far have

borne the brunt of the pan-

demic? And will she encounter

fresh resistance from Ger-

many, whose top court is set

to rule in May on the legality

of the ECB’s bond purchases?

The new program “could

become politically contentious

down the road as some will

see this as hidden monetary

financing” of eurozone gov-

ernments, which is illegal un-

der European Union treaties,

said Oliver Rakau, an econo-

mist with Oxford Economics in

Frankfurt.

Ms. Lagarde’s efforts to

help combat the spreading

BYTOMFAIRLESS

ECB Chief, Germany Clash on Aid

Christine Lagarde has tried to bridge internal rifts over broader ECB strategy since becoming president.

ALEX KRAUS/BLOOMBERG NEWS

EU Relaxes Rules

On Help to Firms

BRUSSELS—The European

Union agreed to relax the bloc’s

rules on state aid to companies

until December so governments

can mitigate the economic impact

of the coronavirus on business.

European governments will

be allowed to give grants, tax

breaks and advance payments

of up to €800,000 ($853,000)

to each company affected by

the crisis, said the European

Commission, the bloc’s executive.

Governments gave their

green light after making some

adjustments, including raising the

grant ceiling to €800,000 from

the initial proposal of €500,000.

Other measures allowed un-

der the new rule are govern-

ment guarantees for bank loans

taken by companies, subsidized

public loans to companies and

the possibility for governments

to use banks’ existing lending

capacities to support small and

midsize enterprises.

Such aid passed through

banks won’t be considered as

aid to the banks, the commis-

sion said. Government aid to

banks is subject to strict regu-

lation.

—Valentina Pop

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