ECB gives ailing euro zone economy another shot of stimulus

Commission backs €250m Restart Fund and a €200m scheme to produce Covid solutions

The ECB said it would increase the size of emergency bond purchases by €600 billion to €1.35 trillion. Photograph: iStock

The ECB said it would increase the size of emergency bond purchases by €600 billion to €1.35 trillion. Photograph: iStock

 

The European Central Bank (ECB) approved yet more stimulus on Thursday to prop up an economy plunged by the coronavirus pandemic into its biggest recession since the second World War.

The move comes as the European Commission gave its approval for two Irish coronavirus-related grant schemes for businesses.

Just months after a raft of emergency measures, the ECB said it would increase the size of emergency bond purchases by €600 billion to €1.35 trillion and that the purchases would run until the end of June 2021, six month longer than originally planned.

The ECB also said it would reinvest bonds maturing in its pandemic emergency purchase scheme at least until the end of 2022.

As the downturn runs deeper and longer than expected, governments are running record deficits to cushion the impact of the pandemic, putting a greater burden on the ECB to soak up this new debt and keep borrowing costs manageable.

The bank earlier committed to buying up to €1.1 trillion worth of bonds this year. But even record purchases have struggled to bring down yields on debt issued by countries on the 19-nation union’s periphery, particularly Italy, hit hard by the virus and already struggling with a large debt burden.

With Thursday’s decision, the ECB also kept its main interest rate unchanged at 0 per cent and its deposit rate, now its de facto benchmark, at minus 0.5 per cent.

Irish grant schemes

Separately, the commission on Thursday gave the go-ahead for two coronavirus-related grant schemes here.

It has given its backing to the State’s €250 million Restart Fund, which is intended to support micro and small businesses affected by the coronavirus outbreak.

The initiative, which was announced in early May as part of a comprehensive €6.5 billion package for businesses, provides direct grants that are equivalent to an individual company’s commercial rates for last year.

The grant is subject to a maximum amount of €10,000 per company and is intended to help support companies as they move to reopen their businesses and re-employ staff following lockdown.

The scheme applies to businesses with a turnover of less than €5 million and employing 50 people or less, which were closed or impacted by at least a 25 per cent reduction in turnover as a result of forced closure.

The commission has also approved a €200 million Irish scheme to support research and development, testing and production of coronavirus-related products in the Republic.

The Covid Products scheme provides direct grants and repayable advances to companies with more than 10 employees operating in the manufacturing and trade services sector.

The aim of the initiative is to accelerate the development and production of products, including vaccines and other medicinal products, as well as hospital and medical equipment.

– Additional reporting: Reuters