The Strategist

ECB is buying up Italian government bonds amid coronavirus pandemic

04/07/2020 - 03:29

The European Central Bank (ECB) is making every effort to support Italy and other Eurozone countries, whose economies have been hit hardest by the consequences of the SARS-CoV-2 coronavirus pandemic. The bank is currently actively buying government bonds for these countries.

According to the Reuters news agency, in March 2020, the ECB invested €33.75 billion in the purchase of debt obligations of countries using the euro currency. This was done in the framework of the asset purchase program, which has been in force since 2015, and is aimed against weak conditions and inflation that is too low from the point of view of the regulator.

At the same time, about €11.8 billion were spent on the purchase of Italian government bonds. This is significantly more than what the ECB rules provide, Reuters notes. In addition, the European Central Bank also acquired French and Spanish bonds.

Using these measures, the regulator aims to avoid the depreciation of government bonds of certain countries, and to enable them to receive relatively inexpensive refinancing in the capital market.

Earlier, the ECB signaled its readiness to support Eurozone member countries in the event that the rate of their government bonds starts to get out of control. During the crisis associated with the coronavirus pandemic, the profitability of Italian government bonds several times began to grow rapidly, which, in turn, indicated a fall in their prices.

In Italy and some other countries, the ECB was criticized after its chairman Christine Lagarde announced in a press conference in mid-March that the bank’s role was not to close the spread on sovereign debt markets. This statement by Head of the ECB led to an increase in the cost of borrowing in Italy and caused sharp criticism in Rome.

As a result, Lagarde changed her position, and the ECB announced a €750 billion program of asset purchases, aimed at mitigating the economic consequences of the COVID-19 pandemic.