European stimulus roll out too slow, ECB board member warns

Shielding: The European Central Bank (ECB) headquarters in Frankfurt, Germany. Photo: Alex Kraus/Bloomberg

Peter Laca and Jana Randow

March 17 2021 02:30 AM

The European Central Bank (ECB) is shielding the eurozone economy from higher bond yields partly because the region is rolling out its fiscal stimulus too slowly, according to Slovakian central bank governor Peter Kazimir.

While the rise in euro-area government bond yields this year isn’t “dramatic for now,” the ECB board member said the bank wanted to shore up confidence that the region wouldn’t suffer from higher borrowing costs sparked by the $1.9trn (€1.6bn) fiscal package.

“My concern is that, compared with the enormous US fiscal impulse, the effects of the European one will kick in with a major delay – we’re talking months and years,” Mr Kazimir said in an interview. “The joint fiscal reaction is lagging behind and needs to pick up its pace to support the recovery.”

The ECB pledged last week to “significantly” boost the pace at which it buys debt under its €1.85trn pandemic program for the next three months. The move aims to ensure financing conditions remain favorable across the 19-nation currency bloc.

Mr Kazimir said the decision was “a reaction to the spillover of the market move triggered by the approval of the US fiscal package,” and that the intention is to prevent widening discrepancies between economic fundamentals and higher borrowing costs.

In contrast to the US, the European Union’s joint €750bn pandemic recovery fund has yet to hand out cash and is running into trouble, with the union’s executive arm judging that most national spending plans submitted so far still need work to get approved.

The result could be a delay in disbursements, an additional challenge for an economy already recovering slower than its global peers amid extended virus lockdowns and the emergence of a third wave of infections.