FRANKFURT, Germany – The European Central Bank could soon expand its anti-pandemic stimulus program to more than a trillion euros.
Analysts say that the ECB's 25-member governing council could decide as soon as its meeting Thursday to boost the so-called pandemic emergency purchase program by 500 billion euros, bringing it to 1.25 trillion euros ($1.4 trillion). Under the program, the central bank buys government and corporate bonds with newly printed money, a step that helps keep a lid on borrowing costs for businesses and governments.
That's particularly relevant in the case of Italy, whose already-large debt pile is expected to balloon from the current 135% of annual economic output. Loss of market confidence in Italy's creditworthiness could see its sovereign borrowing costs rise – and turn the virus crisis into a financial crisis for the entire 19-country eurozone.
The currency union's vulnerability to market turmoil was underlined by a 2010-2015 debt crisis that saw Greece and four other member countries need massive bailout loans from the other members and the International Monetary Fund.
Italy's market borrowing costs are under control, thanks in part to purchases of its bonds by the ECB under the pandemic program. The ECB says the program is not targeting help for Italy specifically. But boosting the potential amount sooner rather than later would signal to markets the bank is ready to take forceful action to make sure its low interest rates reach all parts of the currency union.
Holger Schmieding, chief economist at Berenberg bank, estimates there is a 60% chance that the central bank will decide to boost its pandemic stimulus program at Thursday's meeting. If it doesn't, he says the central bank could do so in July. The ECB could also lengthen the pandemic stimulus program's duration; right now it is slated to run through the end of the year.
Moving now would also demonstrate to investors that the ECB and its president, Christine Lagarde, will not let themselves be held back by a May 5 legal ruling by Germany's Federal Constitutional Court against a different bond purchase stimulus.