In its recent monetary policy decision, the ECB’s Council did not change the key ECB interest rates or implement a further increase of the Pandemic Emergency Purchase Programme (PEPP). Jan Krahnen, the Director of the Leibniz Institute for Financial Research SAFE, comments on the matter as follows:
"With today's ECB decision, the monetary policy framework remains largely unchanged thus creating an expectationally stable basis for the actual crisis measures, which this time will be taken over by national fiscal policy of sovereigns.
The ECB's strategy is aimed at ensuring a stable supply of credit to the economy and extensive liquidity protection for banks for as long as the pandemic crisis lasts. Although the interaction of monetary and fiscal policy is not coordinated in detail, it does mean a much more powerful public response to system-wide risk than in previous crises.
This is also a big difference from the financial crises of 2007 to 2013, which began in the banking sector, led to state bank bailouts and left the economy largely on the sidelines. This time, sovereign fiscal policy is focusing entirely on companies and households by means of numerous aid packages, without there being any talk so far of supporting the banks.
On the whole, however, it should not be overlooked that the current and massive fiscal reaction of sovereigns bears its own stability risks, which will become a formidable challenge for the ECB as well."