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the European Central Bank undertakes to maintain “ample monetary stimulus”

As every time since March 2020, Christine Lagarde spoke, Thursday, January 21, in front of an empty press room, broadcasting her message by video conference, a reminder that the Covid-19 pandemic continues to rage across the planet. And, as always, his message was clear: the European Central Bank (ECB) remains on the move. “Ample monetary stimulus remains essential”, repeated the president of the institution.

Since March 2020, the central bank of the euro area has released the bazooka. It released a total intervention envelope of 2,500 billion euros (1,850 billion euros from a “pandemic plan”, the rest coming from pre-existing programs). This considerable sum is to be spent over two years, until March 2022. For the moment, a little less than half has been used, mainly by buying the debts of European states. With this very important reserve of ammunition, the ECB did not announce anything new on Thursday, after the meeting of its Governing Council, simply recalling by its message that it remained the keystone of the economy.

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Cautious, she warned that she didn’t feel obligated to spend it all. But its objective is that “Favorable financing conditions” remain in place, whether for households, businesses or states. In other words, it is thanks to the ECB that the policy of “Whatever the cost” promised by French President Emmanuel Macron is possible.

The era of free money

For almost a year now, the world has entered the era of free money. On January 4, France again issued a one-year bond at a negative rate of -0.6%. Investors therefore undertake to pay the government for the honor of lending it money. Over ten years, France has borrowed at -0.3%. Even local authorities benefit from it. On January 20, the Auvergne-Rhône-Alpes region carried out a bond issue of 20 million euros at a symbolically negative rate of – 0.005% over ten years. These rates below zero allow France to have an abysmal deficit in 2020 (probably around 11% of gross domestic product, GDP) without increasing the burden of debt repayment.

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These staggering levels are true across the euro area. Is a political crisis shaking Italy, with the withdrawal of Matteo Renzi’s small party, Italia Viva, from the ruling coalition? The markets are hardly moved by this, with Italy’s ten-year interest rate falling from just 0.5% to just under 0.7%, which remains one of the lowest levels in history .

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