ECB can start phasing out emergency stimulus when vaccinations pick up - de Guindos

FILE PHOTO: Vice-President of the European Central Bank (ECB) Luis de Guindos gives a statement during the second day of the Informal Meeting of EU Ministers for Economics and Financial Affairs in Berlin, Germany September 12, 2020. Odd Andersen/Pool via REUTERS/File Photo

FRANKFURT (Reuters) - The European Central Bank can start to phase out emergency stimulus measures when the pace of coronavirus vaccinations reaches a critical level and the economy picks up speed, Luis de Guindos, the bank’s vice president, told an Italian newspaper.

The ECB will next meet on June 10 and conservative policymakers are already calling for a cut in bond purchases, while others, particularly from the bloc’s south, are arguing for continued patience in clawing back support.

“If by speeding up the vaccination campaign, we manage to have vaccinated 70% of Europe’s adult population by the summer and the economy starts to pick up speed, we may also start to think about phasing out the emergency mode on the monetary policy side,” de Guindos told la Repubblica.

“The normalisation of monetary policy should go hand in hand with the normalisation of the economy,” he said in the newspaper interview.

Less than 30% of the bloc’s population have received their first COVID-19 jabs so far. Experts say that getting 70% of people fully vaccinated is unlikely before the end of July, with the end of August seen as a more realistic deadline.

But de Guindos also cautioned against keeping central bank stimulus lingering too long, warning the side effects could be as damaging as removing support too early.

“Prolonging emergency measures for too long may run the risk of moral hazard as well as the zombification of parts of the European economy,” he said.

Much of Europe’s services sector is now kept afloat by government subsidies and de Guindos called on governments to remove that support only gradually, even if it places a burden on budgets and pushes debt levels even higher.

“It will be crucial that these measures are withdrawn gradually and with a great deal of prudence after the crisis. Otherwise we run the risk of choking the recovery,” he said.

Reporting by Balazs Koranyi; Editing by Peter Cooney