On the surface, the 750 billion euro European Union plan to prop up economies hammered by the coronavirus pandemic eases pressure on the European Central Bank which has long urged Europe’s leaders to do more to strengthen the bloc’s economy.
So, ECB rate setters meeting on Thursday could well hold back until the EU deal is done, right? Well no, argue many economists, who believe fresh stimulus in June is more likely than not. After all, the EU recovery fund will take time to set up and will likely face hurdles on the way, they say.
In addition, the ECB is burning through its emergency asset purchases, which will likely run dry by October – unless expanded. And the unprecedented nature of the COVID-19 shock means the economic outlook remains far from certain.
Fresh ECB stimulus would likely fuel gains in southern European bonds and the euro, basking at two-month highs on the recovery fund optimism. If further ECB stimulus is matter of when not if, the key question for the ECB is, why wait?