Monday, June 17, 2024

Pandemic Emergency Purchase Program (PEPP)

The Pandemic Emergency Purchase Program (PEPP) is a new temporary asset purchase program for private and public sector securities.

In response to the COVID-19 (coronavirus) crisis, the European Central Bank (ECB) launched the €750 billion Pandemic Emergency Purchase Program (PEPP).

On June 4, 2020, the European Central Bank announced an increase in PEPP by €600 billion, bringing the total to 1.35 trillion €.

The duration of the program has also been extended from the end of 2020 to June 2021, or until banks consider the crisis to be over.

On December 10, 2020, the European Central Bank expanded its Pandemic Emergency Quantitative Easing Program (PEPP), adding €500 billion of firepower to the facility.

“In view of the economic impact of the resurgence of the pandemic… the Governing Council has decided to increase the size of the pandemic emergency procurement program by €500 billion to €1.85 trillion,” the December statement read. Purchases under the PEPP will continue for a further nine months, until March 2022, or “until the [European Central Bank] judges that the coronavirus crisis phase has ended.”

This is basically a massive stimulus package from the European Central Bank to help cushion the economic blow from the coronavirus crisis.

This is an expansion of the ECB’s Asset Purchase Program (APP), a package of asset purchases launched by the ECB in 2014 to support monetary policy.

PEPP, like earlier APPs, includes programs to purchase sovereign debt, covered bonds, asset-backed securities, corporate bonds and commercial paper.

As with the APP, the ECB will be able to lend any securities purchased under the PEPP.

Why is PEPP important?

On March 18, 2020, the ECB unveiled the PEPP as an interim program to purchase up to €750 billion of public and private sector securities until the “crisis phase” of the COVID-19 crisis is over, but at least until End of 2020.

The European Central Bank’s epidemic emergency purchase program aims to support liquidity and financial conditions in all sectors of the euro area economy.

This new temporary asset purchase program focuses on private and public sector securities and adds €120 billion to the ECB’s €20 billion monthly asset purchase program announced on March 18, 2020. A total of 7.3% of euro area GDP.

The program was launched on March 26, 2020, and purchases will continue until at least June 2021, but are likely to be extended beyond this time frame if the ECB determines that the coronavirus pandemic remains in a crisis phase.

European Central Bank President Lagarde also pointed out that the European Central Bank is fully prepared to expand the size of the asset purchase program and adjust its composition if necessary.

The ECB stated that asset classes eligible for the ECB’s existing Asset Purchase Program (APP) are also eligible for the PEPP, namely:

  1. Corporate Sector Procurement Plan (CSPP)
  2. Public Sector Purchase Program (PSPP)
  3. Asset-Backed Securities Purchase Program (ABSPP)
  4. Covered Bond Purchase Program Third (CBPP3)

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