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Literature Review 
 Students should provide a comprehensive explanation of the European Central Bank’s (ECB) role and
basic functions for the European Union and the Euro Area in particular. 

 Students should identify the role of the European Central Bank in the recent COVID -19 pandemic and
analyze its actions in order to mitigate the effects created by it. 

Among many obstacles, Covid-19 has a great impact on the economy, which has to be taken care of by the
ECB. The role of ECB is to maintain price stability by establishing key interest rates and by regulating the
money supply (McBride et al. 2019). Such an emerging situation calls for urgent measures to reduce the brunt of
the pandemic on the euro currency and banking system. The relevant literature based on the ECB (2020),
provides detailed information on the actions taken in support of the euro region. According to Aguilar et al.
(2020), ECB concentrated on their asset purchase programs (APP and PEPP) and their long-term refinancing
operations (LTRO, TLTRO III, and PELTRO) with a threefold objective: (1) to ensure that the monetary policy
was adequately accommodative; (2) to promote the stabilization of financial markets; and (3) to provide
adequate liquidity.

Firstly ECB took action on supporting the economy to incorporate the collision, by using the pandemic emergency
purchasing program (PEPP) of "€1.350" billion (ECB 2020), which aims to reduce borrowing rates and boost lending in
the euro area. The purchases are done in a flexible way between "asset classes" and between "jurisdictions" (ECB 2020).
Furthermore, according to ECB (2020), they also presented the "asset purchase program" (APP) by which they would
have to make monthly net purchases of "€20 billion" until the end of the year.

Secondly, they tried to keep borrowing affordable with low costs by keeping the key interest rates at low levels (ECB
2020). Particularly, in "September 2019" the key interest rate was " (deposit facility) -0.50%" and the ECB stated that
they intend to keep them at lower levels until they manage to reach the inflation outlook converges robustly to a similar
level below "2%" (ECB 2020).

Thirdly, ECB (2020) tried to help businesses and households by increasing the money supply so that they could take
credit easily if needed. For this reason (ECB 2020), ECB altered TLTRO III by reducing with "25 points" the interest
rate, in order to enhance bank lending.

Moreover, ECB (2020) tried to make sure that short-term considerations do not prohibit lending in order to support
banks to continue lending money to citizens. Based on ECB (2020), the central bank settled on further longer-term
refinancing regulations (LTROs) to provide liquidity for the banks.

The ECB also made a lot of easing for banks' capital and in terms of schedules, deadlines to allow banks to lend
money (ECB 2020). Therefore, during the COVID-19 pandemic (ECB 2020), banks are not required to "pay dividends"
or purchase "shares".
 Lastly, ECB (2020), improved the current "swap lines" with the intention of sustaining financial balance through
foreign collaboration. Therefore, "6" central banks decided to enhance the USD liquidity by reducing the pricing of USD
swap transactions (ECB 2020).

§  Analysis and Policy Implications

 Students should critically assess the macroeconomic policy followed by ECB throughout the pandemic
crisis and discuss its effectiveness in safeguarding the stability of the common currency and at the same
time satisfy the needs of the country members. 
First of all, we should address all the consequences that coronavirus caused after it's spread all around the world.
As this virus was unknown and deathly dangerous, nobody knew how to deal with it so, it managed to spread
fast. The governments had to protect the health of the citizens so, the lockdown was necessary. According to
Fernandes et al. (2020), the unemployment rate increased, since in many countries nobody was allowed to get
out of their houses. Many businesses switched online, but many of them couldn't afford this pandemic's
consequences so, they closed. Therefore, many people missed their income, which consequently led to a
decrease in consumption (Berger 2020). Based on Fernandes (2020), there was an overall reduction of -4.5% of
GDP in different countries of the world. So, in order to guarantee the endurance of the economies, central banks
had to take various actions to help the economy in the upcoming difficult months.

List of actions

According to Aguilar et al. (2020), "APP" was used by the central bank to consume a part of "duration risk" so,
when the central bank purchases bonds, it prevents the latter's capacity from employing new risks. Therefore, in
this way, by developing the APP they decreased the risk's price on the market. Based on European Parlament
(2020), the purchases with the APP will continue till the liquidity has been achieved and they also aim to
increase the current stock by "39%".
Moreover, PEPP, which is a program for both public and private areas, increased its original envelope from
E750billion to 1.35trillion (Aguiler et al. 2020). According to Aguiler et al. (2020), PEPP eased the conditions
in the eurozone and managed to reduce the "sovereign debt yields". Both these programs are seeking to increase
securities to approximately "4.4trillion" by June 2021 (Aguiler et al. 2020). PEPP created a positive result on
the stock market and it lowered the volatility of the stock market. Furthermore, PEPP had a huge impact when it
was first introduced and not after it was improved because, in March it was a new, sudden program which no-
one was expecting, while in June it was just improved and everyone was informed about it. The second reason is
that the improvement was done in June, a period when the tension was decreased (Aguiler et al. 2020).
Furthermore, the long term refinancing operations (LTROs) provided liquidity for the banks where the interest
rate is equal to the deposit rate (European Parliament 2020). According to the European Parliament (2020),
swap lines worked upon sustaining foreign currency liquid therefore, the repetition was increased from once per
week maturity to daily and during the period with less tension, it was decreased to 3 times per week.

Moreover, the increased lending to banks with TLTRO with the regulated rate has appeared to have a successful
outcome as the banks borrow from the central bank to answer the request for credit (Fraioll 2020), accordingly
that they can support all the households and businesses who are in need. Therefore (Aguilar et al. 2020), ECB
also diminished the collateral by "20%" to help the banks increase their fundings, so they could make loans to
companies and people who needed money to support their businesses.

All these measurements had the purpose of helping the economy of the eurozone and the euro currency, and
they seem to have been successful. As analyzed above, each of the actions had a good impact on supporting and
diminishing the covid-19 effect in the marketplace. According to Aguiler et al. (2020), all these measurements
had not changed since when they were first applied, they have just developed them further over the months.
Their action succeeded, even though the pandemic is not over yet, and everything is uncertain, as, at the
moment (November 2020), the pandemic is going towards the second wave, which is full of uncertainties.
Based on Mersch (2020), as the lockdown measurements loosened, everything started to work back again with
specific regulations, to protect the health of people.

The reopening was easy for some businesses and for the others it was such a difficult step. Many of the
countries of Europe have their economies based on tourism, and all the measurements and restrictions did not
allow people to travel around, this makes tourism the most affected industry (Euronews 2020). Therefore, all the
countries and businesses who were dependent on tourism had a hard time cooperating with covid-19's
consequences. For example, Italy and Spain would need more time to recover (Fraioli 2020), as they relied
mostly on tourism and they both have the most limited borrowing capability so, they are not able to spend much
on the recovery.

(Tidey 2020)

Since September 2019, the interest rates have been kept at the same level which has helped to sustain
accommodative risk-free interest rate levels (Aguilar et al. 2020). Therefore, the risk-free has influenced shifts
in the yield curve, which have affected the funding costs on the debt market and bank lending (Aguilar et al.
2020). All the programs developed by ECB (Aguilar et al. 2020), have helped in maintaining helpful financing
circumstances for every government, household, and business. Moreover, according to Aguilar et al. (2020), the
inflation expectation remains beneath the objective so, there are necessitated to be done some alterations in
order to shift inflation approaching their goal.

European Central Bank has acted in the right way and at the right time in such difficult circumstances, to help
the economy of the euro area. Even though their actions may appear to have been effective, there is huge
uncertainty and unpredictability, and many things are changing every single day, so they have to ready to be
ready and vigilant to act again if it is needed.
  Students should propose some alternative solutions/actions that could have been taken by the ECB
during the crisis.

All the actions and measurements that ECB took were effective in supporting and aiding the European financial
system. According to Bassanese (2020), all the actions executed by the central banks all around the world are
overprotective for the economy. The reason why is that all the actions and programs for the moment are
effective, but what is going to happen afterward when the pandemic will be over. The governments, big and
small enterprises are getting used to the support of the central bank and then after the pandemic, it will be hard
for them to go back to the previous state before COVID-19. This can also increase the risk of the financial
bubble(Bassanese 2020). In this way, if the central banks let the governments, investors, companies deal with
all the situation by themselves and take control of their own problems it would be easier in the future after
covid-19. Therefore, all these measurements are creating great help for all the financial system, and they are
getting used by this help, so the central banks should also think about the future after covid-19 and how the
governments and enterprises are going to deal when the central bank's help will be over.

Moreover, based on Bassanese (2020), if every central bank will proceed with the negative short-term interest
rate the exchange rate will not have any change but the interest rate all around the world is going to be lower.
Furthermore, during these pandemic central banks are buying as many bonds as they can, but this is not a good
solution because they need to think about the future. However, what are they going to do with all those bonds
after when the pandemic is over, for example (Bassanese 2020), Japan in 2016 used to buy as many bonds as
they could but now they trying to find a solution and get rid of them.
Furthermore, what is going to occur if liquidity becomes changeless since the pandemic is full of uncertainties
(Claeys 2020)? ECB should proceed to use the deposit rates if there continues to be excess liquidity
afterward(Claeys 2020). However, holding high deposit rates and surplus liquidity creates difficulties for the
ECB as it may limit its profits and extend losses (Claeys 2020). Nevertheless, the COVID-19 pandemic is
unexpected and full of uncertainties, and nobody can be 100% sure of the consequences and the actions that
need to be implemented.
Links
https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200416~4d6bd9b9c0.en.html 

https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200604~a307d3429c.en.html
https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200827~1957819fff.en.html
https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200804~b2c0f2115a.en.html
https://www.cnbc.com/2020/09/01/unemployment-in-the-eurozone-reaches-xxx-in-july.html
https://www.hellenicshippingnews.com/ecbs-de-cos-says-governing-council-should-increase-monetary-
accommodation/
https://www.cnbc.com/2020/10/29/ecb-meeting-october-2020-.html

introduction

The COVID-19 pandemic is a shock of unprecedented intensity and severity. The challenges facing all parts of
the economy in dealing with the economic, humanitarian and social consequences of this crisis are historic. 

Central banks are no exception. In my remarks this morning I would like to explain how the ECB has responded
to these challenges, and how our response is contributing to mitigating the economic and financial fallout from
the pandemic, supporting firms and households in the entire euro area.

I will show tentative evidence that suggests that our measures have helped stabilise broad funding conditions in
the euro area, improve market liquidity and reduce volatility, thereby safeguarding the financial conditions that
are necessary for the achievement of our price stability mandate.

The covid-19 pandemic occurred very fast and when no one was expecting it, and due to its dangerousness, the
governments had to act to protect the health of the population. Therefore, the European Central Bank had to
make some measurements to support the economy of the euro-zone. As mentioned above, all those actions have
supported the economy during all the months until now. The actions seem to have been effective and the ECB
has been trying to make changes as the pandemic changes the conditions and creates new challenges every day.
However, as there is huge uncertainty, ECB has to be ready at any time to undertake other actions. Moreover,
ECB should also consider forecasting the consequences of their actions after the pandemic is over, in order to
provide support without making the situation worse. In conclusion, nothing is predictable and the economy is
facing new challenges every day during this pandemic, the ECB and the governments need to be vigilant to react
at the proper time.