Europe leaves stimulus running hot ahead of recovery

FRANKFURT, Germany (AP) — The European Central Bank left its key pandemic support for the economy running full blast even as the economy shows signs of recovery thanks to lower virus cases and fewer restrictions on activity in the 19 countries that use the euro currency.

The central bank said in its policy statement Thursday that emergency bond purchases would remain at “a significantly higher pace” over the coming quarter than during the first three months of the year. That mirrored language from its last meeting on April 22, changed only to extend the higher pace of purchases by a quarter.

ECB President Christine Lagarde is expected to walk a fine line Thursday between acknowledging improving economic prospects, while driving home that the stimulus will not be withdrawn before the recovery is on more solid ground. While economic activity is picking up, Europe is not expected to reach pre-pandemic levels of output before 2022, well behind the US and China.

Analysts say she will likely avoid any talk of a stimulus taper because that could send market borrowing costs higher for companies.

The central bank for the 19 countries that use the shared euro currency has been purchasing around 85 billion euros per month in government and corporate bonds as part of a 1.85 trillion euro ($2.25 trillion) effort slated to run at least through early next year. Purchases were stepped up in March amid lagging vaccinations and high COVID-19 case numbers.

The purchases drive up the prices of bonds and drives down their interest yields, since price and yield move in opposite directions. That influences longer-term borrowing costs throughout the economy, sending them lower.

That’s exactly what the bank wants at a time when many companies are struggling with reduced demand, higher debt...