The latest outbreak of the pandemic, which began last November, has forced most European countries to reintroduce some restrictions they had previously lifted. Although restrictions that are in force for more than four months have helped curb the second wave, they have not prevented a rapid increase in cases due to its mutations. Most countries have extended many restrictive measures until the end of March, while those that reopen the economy do it very gradually.

Strict restrictions significantly affect economic activity in Europe. Estimates indicate that the Eurozone GDP is expected to shrink by 1.7% on a quarterly basis in the first quarter of 2021, followed by a fall of 0.6% in the last quarter of 2020. At annual level, overall growth is predicted at 3.9%, while the previous prediction was at 3.6%. But for that to happen, it is necessary to speed up vaccination programs so that Europe as a whole will not lag behind global recovery, as its economic support packages are significantly lower than those of the United States in particular.

At the same time, bond yields continue to rise and concerns about an undesired rise in inflation continue. By the end of February, yields of the ten-year bonds of the Eurozone economies had increased by 35 basis points. The fact that the rate of asset purchases under the ECB's pandemic emergency program slowed down for a fourth consecutive week to € 12 billion was a false message from the Central Bank, causing concern and market turmoil.

Developments in the bond market find the ECB divided on whether there is serious reason for concern over the recent increase in government bond yields and the need for immediate intervention. Many attribute this development to the optimism that prevails regarding the improvement of the economy in the second half of the year, while on the contrary there are people that wonder whether the rise in yields reflects some kind of fundamental change in the Eurozone.

In this context, ECB’s yesterday decision to accelerate markets’ growth in the next quarter, under the contingency plan (PEPP), came to allay concerns about the possibility of a spike in inflation in the next period and to confirm the Central Bank's decision that it will not allow a yield rally to derail the recovery amid economic uncertainty that the pandemic continues to trigger across Europe.