ECB's €1.1tn economic stimulus is 'no silver bullet'

MEPs have asked if the ECB's quantitative easing programme is too little too late.

By James O'Brien

23 Jan 2015

The European central bank (ECB) chief Mario Draghi has unveiled a plan that will see the bank engage in an asset purchasing programme worth €60bn per month, until the end of September 2016, in an attempt to revive the flagging eurozone economy.

Speaking following a meeting of the ECB governing council, Draghi said, the plan "was consistent with the aim of achieving inflation of close to or below two per cent". Draghi also announced eurozone interest rates will remain at the record low rate of 0.05 per cent.

Draghi emphasised that the central bank's governing council was unanimously behind the unprecedented move.

Five years into the economic crisis, the ECB's about-turn follows similar moves made by the UK in March 2009 and the US in November 2008.

European parliament president Martin Schulz welcomed the announcement, saying it represented “a new chapter for the euro area” expressing confidence it would stimulate a recovery.

Parliament's EPP group also welcomed "the agenda for investment" but cautioned that "further progress in the consolidation of national budgets is an indispensable prerequisite".

Burkhard Balz, a member of parliament's economic and monetary affairs (ECON) committee called on the ECB "to explain why action beyond conventional monetary policy measures, such as changing interest rates, is necessary and justified".

Enthusiasm for Draghi's plan was not shared among parliament’s other political groupings. S&D group vice-president Maria João Rodrigues welcomed the announcement as "a move in the right direction".

"The eurozone cannot duck the tough decisions, and this is just another exercise in kicking the can down an already long and troubled road" - Sander Loones, ECR

She added that "since interest rates can hardly be lowered any further, it is right for the ECB to commit to quantitative easing (QE)".

Rodrigues said it was regrettable that "only 20 per cent of the additional asset purchases will be subject to risk sharing at the level of the ECB and the rest will be left to national central banks".

The Portuguese deputy outlined her belief that placing the burden on national central banks "sends a bad signal about Europe's monetary union," warning that this amounted to "renewing the fragmentation which has held Europe back for so many years".

Rodrigues concluded that, "The ECB has bent to pressure from the German government and the Bundesbank, who keep repeating the same mistakes over and again. Instead of decisively acting to keep the eurozone together, they prefer to use the financial markets to impose conservative reforms on weaker countries. "

Sander Loones, a vice-chair of the ECON committee warned against QE. He warned that, "We are not going to solve the eurozone crisis by printing money. At best this buys time but it stores up many problems that will come back to bite us."

Loones said QE would result in governments "putting off the tough decisions […] to regain competitiveness and promote investment".

The ECR deputy concluded that, "The eurozone cannot duck the tough decisions, and this is just another exercise in kicking the can down an already long and troubled road."

ALDE group leader in the parliament Guy Verhofstadt warned against complacency, saying the ECB’s intervention was "no silver bullet" and its actions were prompted by the failure of European leaders to address the crisis.

"[The ECB plan is an] insane notion of risk sharing by national central banks [and sends] the message that the ECB is preparing for a break-up" - Marisa Matias, GUE/NGL

ALDE ECON committee member Sylvie Goulard added that the ECB’s "decision should remind us that we all need to get our acts together", while GUE/NGL ECON committee member Marisa Matias lambasted the ECB’s "big fuss" announcement criticising "the insane notion of risk sharing by national central banks [that] would send the message that the ECB is preparing for a break-up".

Matias' fellow ECON committee member Miguel Viegas was particularly critical of the inclusion of "additional criteria" for the purchase of bonds of countries in EU/IMF adjustment programmes, something he described as "utterly unacceptable blackmail policy [and] a clear attempt to try and manipulate the results of the forthcoming Greek elections".

Greens/EFA co-president Philippe Lamberts criticised eurozone member states "inaction" and said the ECB was "[playing] the role of an emergency service in the face of deflation".

Lamberts added that "the ECB is stuck between a rock and a hard place due to the hapless response of EU governments" to the economic crisis.

At a press conference in Frankfurt, the ECB chief attributed "weaker than expected" inflation to falling oil prices and said he expected economic reforms to continue. Draghi warned that it would "be a big mistake if countries thought this was an excuse for a fiscal expansion".

The ECB hopes the stimulus plan will boost inflation, drive down the value of the euro on foreign exchanges and result in an improvement in consumer sentiment.


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