Today the ECB played Jeeves to the fiscal Wooster says Oliver Blackbourn, Multi-Asset Portfolio Manager at Janus Henderson Investors

The European Central Bank (ECB) remains close to the limits of what it can do to meaningfully support Europe’s economies through monetary policy innovations. The real impact on Europe is going to come from the decisions made about the scale and scope of the proposed EU Recovery Fund when political leaders lock horns in the next few days. A swift agreement on a sizeable support package would do much more for the eurozone economy than the ECB can now achieve. The ECB is likely only to maintain a steady course from here, boosting the level of asset purchases as it sees fit.

There was only ever likely to be downside for the ECB at this meeting. The institution operates under the knowledge that a misstep could see Italian government bond yields jump higher, again bringing into doubt the long-term viability of Italy inside the Eurozone. Therefore, all eyes are fixed on the country allocations of its asset purchase programs, most recently the Pandemic Emergency Purchase Program, as a reduction in the purchases of Italian debt could create problems for a country with its sizeable debt load. In the end, the statement contained little new information on this, and Italian sovereign yields were marginally lower following the announcement. The euro regained ground but equity markets were little changed following the decision.