ECB split brewing over flexibility of PEPP stimulus - report

Author: Justin Low | Category: Central Banks

A little storm cloud starting to emerge over the ECB

Bloomberg is reporting that policymakers at the ECB are facing a potential rift over how much their PEPP stimulus should stay weighted towards weaker countries such as Italy, one of the worst-hit countries in the region from the pandemic.

Citing sources familiar with conversations with ECB officials, this could be the first major disagreement among policymakers that could threaten to undermine the PEPP stimulus in the coming months/quarters.

This sort of echoes the dispute seen back in the Draghi days about QE but instead is focused on how far-reaching the PEPP stimulus should be.

I think for now this will stay as a hypothetical debate rather than an actual divide being seen within the ECB. I reckon we'll only get more of a difference in opinion once the economic recovery path shows two potentially different speeds within the euro area.

Countries that may be less affected by the virus pandemic will want to get out of this as soon as possible while countries more affected will want this program to last as long as needed. In the case of Italy, perhaps this pandemic was an economic blessing in disguise - in the sense that they got a much needed reset and are allowed to 'bend the rules'.
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