ECB Expected To Announce Quantitative Easing

Written By Unknown on Kamis, 22 Januari 2015 | 18.56

At last. It may have taken five years but today the European Central Bank is expected to press the button on its own quantitative easing scheme.

Before that jargon turns you off, this is big news. Quantitative easing - the printing of electronic money, which is used to buy government bonds - is the nuclear button in the central banking arsenal.

It's what you do when interest rates are already rock bottom and still your economy is stalling.

The Bank of England has printed £375bn of cash - enough to buy every property in Scotland and Northern Ireland.

The Federal Reserve in the US has bought enough to afford it every property in New York and London. In other words, this is big stuff.

Why has the ECB taken so long to get round to it? Three main reasons come to mind.

First, the Germans are desperate to avoid any central bank money printing at all. Memories of 1920s hyperinflation run deep.

So the Bundesbank, the German central bank which is now a member bank of the ECB, has been against this each step of the way.

Second, there are big technical challenges. For instance, if you're buying government bonds, whose do you buy: Germany's, Greece's, Spain's?

How do you account for the fact that some of those bonds are more expensive and some are more risky - more likely to default?

Third, there have been legal problems. Written into the ECB and eurozone's founding articles are clauses preventing the area from so-called "monetary financing" - using the central bank to allow governments to raise money.

Squint your eyes tight enough and that's precisely what QE looks like. The European Court of Justice passed a ruling recently which implies that this may not be quite as much of a barrier as previously thought - but there are still some open questions.

Those barriers haven't gone away. However, in recent months the eurozone economy has slid in a direction that makes even the most resistant a bit more open to QE.

The core of the economic area is stalling: growth in Germany and France is close to non-existent. In other parts of the eurozone - Greece, Italy, Spain - things look positively dire.

Inflation across the eurozone has fallen into negative territory, dropping to -0.2%. That is so far below the ECB's 2% target that it would be odd, frankly, if it didn't do something about it.

Hence why everyone is expecting its president, Mario Draghi, to announce QE today.

That said, there remain some big questions: how big will it be; what bonds will the ECB buy; will it take on the risk of them defaulting in the future?

Such questions aren't just technical: they determine how successful the policy will be. Generally speaking, the more half-hearted things like this are, the less likely they will make much difference.

Finally, there's the rather more baleful question: is QE really worth it at all?

There are still open questions about just how successful it has been in the US and the UK, not to mention Japan.

In those economies it has certainly boosted asset prices (for instance of houses and shares). There is less evidence of it boosting productive economic activity.

Many questions for the ECB. But at last we are about to get some answers.


Anda sedang membaca artikel tentang

ECB Expected To Announce Quantitative Easing

Dengan url

http://temannyakawanya.blogspot.com/2015/01/ecb-expected-to-announce-quantitative.html

Anda boleh menyebar luaskannya atau mengcopy paste-nya

ECB Expected To Announce Quantitative Easing

namun jangan lupa untuk meletakkan link

ECB Expected To Announce Quantitative Easing

sebagai sumbernya

0 komentar:

Posting Komentar

techieblogger.com Techie Blogger Techie Blogger