The Strategist

ECB asks member states to increase budget spending

11/02/2020 - 04:11

The European Central Bank (ECB) has in fact asked member governments to raise their prices and budgets to save the eurozone economy, writes Bloomberg.

It is expected that the regulator will soon increase its quantitative easing (QE) programme, which will buy government bonds from banks and further reduce rates, thus providing the banking system with additional liquidity for lending. This was recently announced by ECB head Christine Lagarde.

However, monetary measures alone will not be enough to fully stimulate the economy, said financiers. The ECB expects national governments to seize the opportunity and increase budget spending, which will help mitigate the decline or even ensure GDP growth.

The second wave of the coronavirus pandemic came as a surprise to many governments, which hoped to roll back assistance programmes in the form of subsidies and soft loans to citizens and companies soon. However, new injections will now be needed.

At that, there is still limited scope for additional costs. The authorities of the member countries have not yet been able to finalize an agreement on the establishment of a single recovery fund to be filled with borrowings on behalf of the European Commission. The prospect of a record €1.8 trillion single EU budget remains uncertain. Not all participants are ready to make the necessary contributions.