Central banks have initial successes

 

The crisis measures of the central banks have taken effect in the last two days. The ECB in particular has made a significant contribution to calming the situation in the euro zone with its announcements.

The ECB will expand its bond purchase programme by the end of the year to include PEPP with a volume of EUR 750 billion and will also extend this to include Greek bonds. Greece’s rating is currently below investment grade. Under the previous rules, Hellas bonds could not be purchased by the ECB. With this decision the ECB has given the signal that it will continue to buy Italian bonds even if the country’s rating is downgraded.

Behind this decision is the political will to ensure that the euro zone is not divided by this crisis. Structural integrity should therefore be maintained at all costs. This should initially be possible. However, with the problems in Italy and possibly also in Spain, European solidarity is facing major challenges. It is not surprising that the introduction of Eurobonds (or „corona bonds“) is now being addressed quite openly. With such an instrument, the financial burden could be taken out of the individual national budgets and distributed among all euro countries in a spirit of solidarity. In the medium term this would of course be at the expense of Bunds, which would then offer higher yields due to the higher liability risks for Germany. However, this would actually benefit German savers, since a large part of private retirement provision is in fixed-interest investments, so that savers who invest in such bonds for the first time would benefit from higher interest income.

Companies are now also receiving direct support from the central banks. This enables the US Federal Reserve and the ECB to buy short-term corporate bonds (CP), thus ensuring the liquidity supply of larger companies more directly than before. Liquid funds are also currently the bottleneck for companies. Companies with access to the capital market now naturally have an advantage here. The commitments made by governments, especially in Germany, to support small and medium-sized companies are therefore very important for avoiding long-term negative consequences.

The number of infections continues to rise. In my view, no improvement is expected before the end of next week. Many fellow citizens continue to behave very irrationally, so initial restrictions, as is now the case in Bavaria, should still be introduced across the board. However, this should not initially contribute to greater uncertainty.

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