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Europe will use entire stimulus

FRANKFURT, Germany (AP) — European Central Bank head Christine Lagarde said the bank would “likely” use all of the 1.35 trillion euros ($1.6 trillion) in planned stimulus to support the economy through the pandemic, which has caused a massive recession and is seeing a new rise in contagions.

After the ECB left its key rates and stimulus settings unchanged on Thursday, Lagarde said that strong central bank support was still necessary given high uncertainty about the recovery from the pandemic lockdowns. She repeated the bank’s promise to keep the central bank’s pandemic emergency bond-buying program running through mid-2021 — and in any case until the coronavirus crisis phase is over.

Lagarde said the economy’s return to health will mainly depend on countries’ ability to contain the outbreak. The recent increases in infection rates are “headwinds to the short-term outlook” while “a further sustained recovery remains highly dependent on the evolution of the pandemic and the success of containment policies.”

After some initial success in reversing large outbreaks in Spain, Italy and France, and after Germany’s success in containing a disastrous first wave, cases in Europe have started to rise again as people have returned from summer vacations and after some restrictions were eased.

The pandemic stimulus still has some 850 billion euros left unused, so even with no action Thursday the eurozone economy will still see substantial central bank support. The program pumps newly created money into the economy in an effort to keep credit flowing to businesses and promote growth and stronger inflation nearer to the bank’s goal of just under 2%.

The decision by the ECB’s governing council to leave its policy programs unchanged was widely expected, but some analysts expressed surprise at the lack of hints that the bank was ready to add more.

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