• ECB announces massive stimulus package
  • Purchases to continue till crisis over, issuer limits may be removed
  • Lagarde's "whatever it takes" moment

The European Central Bank (ECB) yesterday launched an €750 billion ($820 billion) emergency private and public bond purchase scheme dubbed Pandemic Emergency Purchase Programme (PEPP). According to the statement, it will continue at least until the end of the year and will end only when the "crisis phase" is over. Greek debt and non-financial commercial papers will included in a bond-buying program for the first time and there will also be an easing of collateral rules. The bank's total planned purchases for the year is now a stunning 1.1 trillion euros. 

Remarkably, the bank said that it will consider revising "self-imposed limits" if that is what is required. Right now it purchases a maximum of 33% of a government's outstanding debt and no more than 33% of a particular bond issue. Italian and Greek bond yields plunged in response to the announcement.

Italy has the most the number of coronavirus cases outside of China at 35,713, and other EU countries like Spain, Germany and France are all seeing a rapid spread of the virus.

"The Governing Council will do everything necessary within its mandate. The Governing Council is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock," said the statement. ECB President Christine Lagarde said in a tweet, "Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate." 

The ECB's bazooka comes after heavy criticism for not doing enough to stem the fallout from the COVID-19 outbreak. Lagarde's "no limits" statement is a reversal of what she indicated last week and harkens back to Mario Draghi's important "whatever it takes" phrase uttered in 2012. European officials and investors were ready to heap praise once the announcement was made. "Total support for the exceptional measures taken by the ECB last night," said France's President Emmanuel Macron. "Our peoples and our economies need these measures." 

"The fact that the Eurozone has finally come to terms with the magnitude of the crisis should cushion the downswing and is an important prerequisite for a swift rebound," said Carsten Brzeski, ING's Eurozone chief economist. "As so often in the past, it took the Eurozone (and this time around also the ECB) a while to react. The policy reactions did not come with one big coordinated swoop, but the package of government stimulus, liquidity and guarantees combined with Lagarde’s ‘whatever it takes’ as it stands right now is strong."