Earlier today, ECB President Mario Draghi presented his plan for ‘unlimited’ bond purchases to help rescue struggling eurozone members. The move comes as the ECB revised its economic outlook for the eurozone in 2012 downwards, predicting that the monetary area’s economy will shrink by 0.4% (more than the expected 0.1% contraction).
Since the beginning of the crisis, there have been ongoing questions about whether the ECB is overstepping its mandate by intervening directly in the bond market (see, for example, this Debating Europe interview with ECB Chief Economist Peter Praet). However, the standard answer has been that the ECB has a mandate to control price stability, and that intervention is justified if the bank’s monetary policy signals are being disrupted by market volatility.
The new Outright Monetary Transactions Programme, however, is the first time that the ECB has declared it is willing to engage in ‘unlimited’ bond purchases (or, to be more precise, the ECB has announced there will be: “No ex ante quantitative limits” on the programme, but that it will continue until either the ECB’s “objectives are achieved” or a recipient breaks the conditions attached to the programme). The initial market reaction to the news has been positive, but uncertainty remains about the exact nature of the conditions attached to the new programme.
What do YOU think? Will ‘unlimited’ bond purchases by the ECB be enough to finally draw a line under the eurozone crisis? Or is Mario Draghi acting outside of his mandate and making it easier for countries to avoid painful economic reforms? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions.
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It will sink europe more…… Stopping debt is the only solution
Maybe the first efficient (? -remains to be (ap)proved by the markets) decision of those last 3 years. Painfull economic reforms+austerity=free economic fall, we’ve had enough, let’s now try to rebuild Europe.
Not knowing the detailed conditions, it however seems that such a program will enable countries even more to “blackmail” the Euro zone to buy “bad bonds”.
The criteria by which such intervention is justified need to be very strict, because it the safety net is too safe there will be no motivation for a country to behave.
We already saw similar cases by the weakening of the Maastricht criteria, which was needed to let Greece even into the Euro.
Depending on which economical models you favour, Keynes would not say that government debt is bad as such, but only if the government can make profit in the upturn without the usual political pressure to spend it immediately. That makes such a system seem to be only workable on paper.
At the same time the full liberalisation – to the extreme that a monetary system could also work without a Central Bank – might also not be the prefferred solution for some.
There is no silver bullet in any case, but to unify inflation contral with direct market intervention in the same institution seems at least a bit dodgy.
From my point of view the financial service market needs to be heavily deregulated in order to function propoerly with the coupling of risk taking with responsibility being revamped. That means the logical consequency would be that high street banks and investment banks would not be merged, because of the different risk strategies and different customer profile. This could avoid “too big to fail” and finally a bail-out by governments for cases where actually companies took risks they could not carry.
Is there any answer yet to this question by Goldman Sachs? This will be the indicator in whose interest today’s decision was made.
So let me get this straight… Greece and Portugal for example can not have their debts lifted right now..Only Spain and Italy will immediately benefit from this.. Greece will be able to join only if they fulfill the austerity plan and return to the markets..So no breather for the poor Greek folk at the moment..And every new country that wants to be part of this plan, it has to accept austerity and the IMF…are they joking us? they legitimize austerity all over Europe from now on!!! be prepared Europe… austerity will be in a country near you….soon, at your doorstep…!! great job Mr Draghi….
It won’t be enough…but it can be a step forward
Until BCE can finance banks directly without reflecting it’s weight on a country by country debts basis, as it should be, it won’t be all good but it’s understandable that it can not happen right now because of the still weak EBA control of the banks performances.
Agora a Europa começa do zero as economias estão em baixa e a Italia e a Espanha elas precisam que o Banco Central Europeu para comprar as suas dividas uma quarta parte da chave para economia crescer na zona do Euro esta nestes dois paises é verdade mas é pouco ainda não chega e o tempo vai provar eu também estou da mesma opinião parando a divida o eurogrupo esta de rastos
save bank at the cost of tax payers… why dont the use money for produce some european public goods ?