ECB displays brave face as new variant of virus spreads By Reuters

© Reuters. FILE PHOTO: Banque de France Governor François Villeroy de Galhau at the Banque de France in Paris, France, October 22, 2021. REUTERS / Sarah Meyssonnier / File Photo

PARIS (Reuters) – European Central Bank policymakers on Monday sought to reassure investors shaken by a new variant of the coronavirus, arguing that the euro area economy had learned to cope with successive waves of the pandemic.

Carrying a “very high” global risk of flare-ups according to the World Health Organization, the Omicron variant threatens a rapid economic recovery and could undermine plans by the ECB and other global central banks to cut aid from emergency after nearly two years.

But ECB President Christine Lagarde, her deputy Luis de Guindos and French Governor François Villeroy de Galhau have shown courage in the face of this new risk.

“There is obvious concern about the economic recovery in 2022, but I think we have learned a lot,” Lagarde told Italian TV station RAI on Sunday evening.

“We now know our enemy and what to do next. We are all better equipped to respond to a risk of the fifth wave or the Omicron variant.”

It was taken up by his compatriot and ECB decision-maker, François Villeroy de Galhau, who declared that “the successive waves have so far proved less and less damaging, and this one should probably not modify too much. economic outlook “.

ECB Vice President Luis de Guindos acknowledged the “high degree of uncertainty” and called for keeping all policy options open, but argued that much higher vaccination rates should help the Europe to better face these risks.

All major vaccine makers have started work on a new variant and a US company Modern (NASDAQ 🙂 said a new vaccine could be available in large quantities in early 2022.

Markets regained their composure on Monday as investors awaited further details on the variant, prompting the reimposition of travel restrictions in some countries. [MKTS/GLOB]

UNDER PRESSURE

The ECB is under pressure to cut its monetary stimulus, starting with its € 1.85 trillion ($ 2.09 trillion) Pandemic Emergency Purchase Program (PEPP), as Eurozone inflation is reaching decades-long highs above 4%.

But consumer sentiment started to deteriorate even before news of the variant was announced last week, data showed on Monday.

“Given the rapid developments over the past few days regarding the Omicron variant, the November reading… likely overstates the broader sentiment of participants in the eurozone,” Rory Fennessy, an economist at Oxford Economics, wrote in a note.

“The current uncertainty posed by the Omicron variant adds another headwind to the economic outlook.”

The ECB is committed to running the PEPP until the damage to inflation caused by the pandemic is repaired.

This has arguably happened, with eurozone inflation hitting 4.4% this month and staying above the ECB’s 2% target next year.

De Guindos said on Friday that the PEPP would end in March as planned and that the debate among policymakers was on “alternatives”.

With the PEPP decision seen as a deal done before the advent of the new variant of the coronavirus, eurozone rate-setters had mainly discussed whether to increase bond purchases through other channels, such as than the regular ECB asset purchase program.

($ 1 = 0.8861 euro)

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