>> GROUP: Shadow ECB Council / EZB-Schattenrat  Frederik Ducrozet

Frederik Ducrozet: The European Commission’s proposal for a EU Recovery Instrument is very bold and encouraging, especially in terms of the political signal and the potential for further coordination between monetary and fiscal policy. But, it should not prevent the ECB from doing more. We expect the ECB to remain in pre-emptive easing mode, and increase its PEPP purchase envelope by €500bn at the 4 June meeting, to €1250bn, while extending the programme by nine months through September 2021.

Moreover, several Governing Council members have signalled that there is room to innovate in order to prevent any financial fragmentation. We see four important decisions that the ECB could make in addition to increasing the PEPP:
1) start reinvesting PEPP securities in order to deviate even more from capital keys
2) increase the share of Supranational debt securities (from 10% of public bonds purchases currently) in order to absorb a larger share of future EU bond issuance
3) include fallen angels in asset purchase programmes
4) increase the tiering multiplier (from 6x to 8x currently)
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