Temporary Pandemic Emergency Purchase Programme Decision of the European Central Bank published
A week ago on Wednesday, a Governing Council meeting was held, after which the European Central Bank announced that taking into account the exceptional economic and financial circumstances associated with the spread of coronavirus disease 2019 (COVID-19), it would launch of a new and temporary asset purchase programme, the Pandemic Emergency Purchase Programme (PEPP), with an overall capacity of EUR 750 billion and covering both public and private assets.
The enabling measure is European Central Bank Decision 2020/440, which has been published in the Official Journal today, and enters into force today.
The PEPP will include all the asset categories eligible under the expanded asset programme (APP): the secondary markets public sector asset purchase programme (PSPP), the third covered bond purchase programme, and the corporate sector purchase programme (CSPP) (the Governing Council has decided to expand the range of eligible assets under this programme to non-financial commercial papers, and Decision 2020/441 enacting an amendment to the maturity of marketable debt instruments has been published in the Official Journal today, and will enter into force tomorrow).
Purchases under the PEPP will be carried out ‘to the extent deemed necessary and proportionate to counter the threats posed by the extraordinary economic and market conditions’. They will also be separate from, and in addition to, purchases carried out under the APP, with an overall additional envelope of EUR 750 billion until the end of 2020.
The measure also sets out eligibility of marketable debt securities for purchase under the PEPP, includes a waiver for marketable debt securities issued by Greece. The consolidated holdings under Article 5 of the PSPP Decision 2020/188 will not apply to PEPP holdings, so as to prevent any action that the Eurosystem is required to take from being hampered.
That ‘high degree of flexibility’ (which applies not only to the pricing, but the programme as a whole, compared with the APP) is stated in the measure as being due to the emergency circumstances caused by the pandemic – an extreme economic shock, a declining euro area, with businesses and workers at risk, and with severe downside risks to the relevant inflation outlook.
For an excellent analysis of the PEPP’s legality, its legal basis, ECB President Lagarde’s statements on it, the division of Member State and EU competences in monetary policy, and how the Court of Justice may interpret its scope widely, read this Op-Ed by René Smits.and for a detailed and closer look analysing the nature of the PEPP, what it leaves unclear, what the ramifications are for ongoing debate about the governance of the euro area, read this very useful Analysis by Marijn van der Sluijn.