The Federal Government and the ECB are doing everything right!

High praise to the ECB and the Federal Government! With their respective resolutions, they have not bowed to the actionism prevailing at the beginning of the week, but have given the right impetus in each case.

Together with the EBA, the ECB has announced adjustments to monetary policy measures and relief for banks in several press releases. Thus the key interest rates remain unchanged, but there will be additional purchases of securities worth over 120 billion euros by the end of the year. In addition, the conditions for the supply of liquidity will be eased.

In addition, banks will be called upon to draw on their existing capital and liquidity buffers in order to maintain the supply of credit to the real economy. The regulatory requirements will be reduced somewhat accordingly.

Although some market participants were disappointed, these measures are balanced and helpful. The ECB has done the only thing it can do. By providing cheap and sufficient liquidity, it ensures that banks can fulfil their task of providing credit to the real economy through adequate funding. The crisis we are dealing with does not originate in the financial system. It is about the real economic impact of the corona virus, about supply chains being disrupted, the population being afraid, consumption collapsing and companies having to send their employees home to prevent further contagion.

Fiscal policy measures are needed for the population and, above all, for companies to be able to survive this difficult phase and avoid lasting damage to the economy. This is precisely what the Federal Government has announced today. The current measures consist of more flexible rules for short-time work compensation, fiscal liquidity assistance and a „protective shield“ for companies, as well as funds to strengthen European cohesion. This means that a corona-induced massive increase in unemployment and insolvencies is off the table for the time being. In the medium term, there is also to be an economic stimulus package, which will then provide the necessary impetus for growth. Overall, a very good mix of measures to overcome the current crisis.

Of course, despite these measures, the economic data will now be plummeting into the basement, and a recession cannot be avoided. But the negative spiral that threatens in such a development should not start in the first place.

Of course, the crisis is not over yet. A drug for the treatment of Covid-19 is needed, and if this is possible, the measures now taken to contain the spread of the virus are no longer necessary. Only then should there be a radical recovery in the economy and the markets.

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