ECB Meeting December 2020

“MORE STIMULUS AS SECOND WAVE CHOKES”

The European Central Bank (ECB) will be expected to release additional support for the eurozone as economies struggle to cope with a second coronavirus wave. The ECB will be revealing its latest economic projections and most likely due to increasing coronavirus cases and renewed shutdowns, it may trend downwards. However, the prospect of next year’s mass vaccinations could brighten the longer-term outlook. 

The Governing Council of the ECB is expected to add a further EUR 500 billion to its EUR 1.35 trillion Pandemic Emergency Bond Purchasing Program (PEPP) and extend it beyond the existing June 2021 deadline. The ECB may also provide banks with cheaper loans for longer by way of TLTROs, whereby banks can lend to the wider economy at much more favorable rates. The central bank is assured of retaining interest rates at historic lows but could raise its purchases of pre-pandemic assets from the current EUR 20 billion per month. 

As EU Member States squabble over a EUR 750 billion recovery fund blocked by Poland and Hungary, Lagarde is likely to make further appeals to governments to spread the burden of the fiscal stimulus. EC’s lawyers have identified possible ways of circumventing Poland’s and Hungary’s objections to the EU linking spending to new rule-of-law requirements. 

Lagarde may be strongly questioned on Thursday about the ECB’s ongoing struggle to push inflation up to its target of just below 2 percent, over the medium term. Eurozone inflation remained at -0.3 percent in November, the fourth consecutive month of falling prices. Even with a vaccine around the corner, rising unemployment rates and lengthening lockdown measures would result in the inflation recovery to be slow at best.

“BREXIT, DEAL-NO DEAL?”

A Brexit deal hung in the balance as Britain and the EU made a last-ditch attempt to bridge significant differences to strike a trade deal that would avoid a disorderly exit in just 24 days’ time. The future of Britain’s relationship with the rest of Europe will hang on the success of a dinner between Boris Johnson and Ursula von der Leyen in Brussels on Wednesday. A deal is not expected to be sealed over dinner but negotiations could be expected to resume on Friday after the council summit. Eurozone government bond yields drop ahead of the critical meeting of the European Central Bank this week and with expectations that an agreement between Britain and the European Union will take a hit just weeks before the transition period ends. The European Parliament has scheduled special sessions on December 23 and December 28, which would be the last moment for a deal.

“VACCINE”

The U.K.’s National Health Service launched its immunization campaign on Tuesday. People over 80 years will be given vaccination shots first and around 800,000 doses are expected to be available in the first week. However, the European Medicines Agency has said that it will give its opinion on the Pfizer-BioNTech work only on December 29, suggesting it is unlikely that vaccinations in continental Europe will start before year-end.