In early 2020, COVID-19 sent financial markets into turmoil, while lockdown measures resulted in large and sudden economic losses. In response, governments, financial supervisors and central banks around the world quickly took unprecedented measures. This article focuses on the initial actions taken by the ECB. Sizeable asset purchases, including though a new Pandemic Emergency Purchase Programme, stabilised financial markets. The ECB also gave banks easier access to long-term central bank funding, while simultaneously easing its collateral requirements. That way, banks were able to satisfy euro area firms’ record demand for credit. However, the challenges ahead are manifold. While current conditions allow for a temporary shift towards expansionary fiscal policy, governments should be prepared for scenarios where borrowing costs rise. Otherwise, debt sustainability considerations will interfere with the conduct of monetary policy.