The European Central Bank (ECB) is widely predicted to announce it will begin purchasing government bonds. The policy, known as Quantitative Easing (QE), has already been deployed by the US Federal Reserve and the Bank of England.
The ECB had held off engaging in QE until now due to concerns that it could reduce pressure for economic reforms in the Eurozone, and due to objections from some Member States that the policy constituted mutualisation of debt and was therefore outside of the bank’s mandate (and counter to EU law).
Core inflation in the Eurozone is at 0.7%, well below the ECB’s official target of “below but close to” 2% inflation. Facing a deflationary threat, ECB President Mario Draghi is expected to launch a European QE programme. However, the scale of the programme is completely unknown, as are the finer details.
In the face of opposition from some EU Member States (most vocally from Germany) Mr Draghi may well announce that bonds bought through the programme would be held by the national central banks (e.g. the German central bank would hold German bonds, the French central bank would hold French bonds, and so on). In the event that a Eurozone government were to default on its public debt, the losses would then theoretically be spread among eurozone members and not born collectively.
Critics, however, argue that this constitutes a “watering down” of the QE programme, and will undermine its effectiveness.
We had a comment sent in by Arif, arguing that the Eurozone is now on the brink of deflation, with interest rates near zero. He believed that it was time for the ECB to engage in a massive QE programme to stimulate the European economy.
In December, we spoke to Peter Simon, a German Social Democrat MEP and Vice-Chair of the Economic and Monetary Affairs Committee in the European Parliament. We asked him to respond to Arif’s comment:
Mr Draghi was the one who solved the problem in the Eurozone, with his famous sentence that he was willing to do “whatever it takes”. The prime ministers and chancellors in the Member States were not able to solve the problem.
Now, Mr Draghi is for a second time taking a decisive step to stabilise our currency. I trust in the board of the European Central Bank, and trust that they will present us with a good plan, and that the sum they will present to us will be able to achieve the aim they want it to.
We, as a European Parliament, support any activity of the European Central Bank to stabilise our currency. Of course, the different parties here in the parliament each have different preferred ways to do this, but the history of the euro crisis and the activities of the European Central Bank within the last years under the leadership of Mario Draghi have shown us that we can rely on the ECB to do what they think is best for the euro.
Should the European Central Bank start buying government debt? Or is Quantitative Easing outside of the mandate of the ECB and against EU law? 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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Why doesn’t he buy Greek debt? He would greatly reduce the interests and make the living of million of greeks better. Why will he only buy debts rated at AAA+? I mean of course that will drive some especulators/investors towards Greece but it doesn’t seems as effective. I really regreat a EU that could in one day resolve the problem that greece has but prefers to make them suffer. What a hell of a union, right?
Exactly Pedro! The EU should be judged by its actions and not by its words and they are failing everyone with their actions right now. There is money and time for Ukraine and a trade war against Russia yet there is no time for Greece and no money for the sake of aid, only money with heavy attachments and conditions. For Greeks the Union must be hell on earth. Its hard to see who is really benefitting from the EU untill you see how much these EU commissioners are getting paid and how fancy parliament in Brussels and Strasbourg is. Then it becomes pretty clear…
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It is outside its remit under the treaties & against German Constitutional law, but when did the law stop the lunatics from trying to create the United states of Europe at any cost.
Yes!!! It’s about time! And it should be done properly, not with any of the suggested concessions to German politicians. The independence of the ECB should be taken seriously, and attempts to put political pressure on the board should stop.
At the end of the day it makes no difference whether ‘we’ the ‘electorate’ aagree or disagree as the layers of the political EU will carry on regardless as in their majority they do not believe the rest of us have knowledge of value.
I agree completely
How about you help the real economy and shrink the banking-financial-investment sectors which offer no real benefits to society?
Against EU law. So were the bailouts. The EU cares nothing for the people of Europe, law or Democracy, only their expantionist dictatorship.
European Union = Utopia
Errr…. If by that you mean that the state of perfection is imaginary then I agree. If you genuinely think its perfect, I couldn’t agree less
Common currency demands a common economic and fiscal policy, independent from any national government.. Even the richest and most powerful one (hint hint).. A child can understand that… Come on!!
Unfortunately the one thing the ECB isn’t and that is independent from the influence of National Governments
yes, it should
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Ponzi Debt Kingdoms built around printing machines and their FIAT toilet paper is like putting a gun to your head. http://www.dailymail.co.uk/news/article-2380987/Leading-economist-says-US-national-debt-actually-86-8TRILLION.html
Their should be no central bank, no qe!
comprar dvidas uma forma de ficar com a soberania dos outros pases, no!?
It would seem much smarter then giving the money to banks and then banks buying debt at higer interests.
Ivan, that poll you are linking to is a joke. It was carried out in just three constituencies, and there was no attempt at weighting it. If you look at serious polling, it shows that public opinion is pretty evenly divided – with a small majority actually favouring staying in, and 16% not having made their mind up yet.
I ask the same questions again.
What is the purpose?
What is the goal?
What are the benefits? And who is going to benefit?
I want to know this and more before I cast my vote!
This is just a debate mate but don’t worry, the EU will not be letting you, nor anyone else vote on such things any time soon
The question is what Draghi is doing to make sure the economic linkages and transfer mechanisms that he so often in past press conferences has pointed out as failing, will work when the liquidity is pumped back into the banking system. Will the liquidity just be used to buy back the banks’ own shares from holders that then take the money back to China, or is there an alternative? What will the banks do with the cash? Lend to speculators that buy more oil to put on rusty tankers? Keep wheat supplies scarce so prices skyrocket and poor people face food shortages as we saw around 2007? Lend to companies that buy shale oil and gas from America? Or will Draghi put in firewalls that make the cash run in the Eurozone system (UK is not a member, hehe – eat your hearts out).
And nor do we wish to be a member and considering the state of the Euro, I struggle to see why you would wan’t to be either. Of all those options listed, what do you think Drahgi will do? Because unless he does the last one, it won’t be very funny for very long mate (hehe)
QE is the only way for Save Euro Zone
As long as growth returns, any solution is acceptable!
I would say lets join the BRICS nations and Get out of he Rothchilds Banking System once and for all.
As soon as possible !
hi greast ho europé the eu a great union soft Power in the World a strong green ecofriendly economy democratic union eu . fr.johnnyb.
The idea that we can just spend our way out of trouble by – in effect – printing more money is foolish and a sign of weakness. Europe is still unable and/or unwilling to face tough choices and tough reforms to make it more competitive.
trust Draghi, becouse he is following a non-national aim.
Draghi follows Wall Street’s aim, which is very bad for ordinary people.
Dream on! He `s a Goldman Sachs!!!The same company “adjusting” the paperwork to get many current members in the EU
QE will have small effect if any to the real economy,which means job creations.Most of it will be used in stock markets and other bets on the financial sector.Basically thats the problem…..cause of the crisis and lower demand/consumption of goods and cheap goods imported from China or elsewhere,there is not enough profit to be made in building factories etc in Europe…..thus any money that might be created by QE will still not be used for job creation but buying of stocks,bigger profits to be made there.
So, Mr ECB, here’s what I believe about you. You are a crisis creator because you clean up so very nicely from each one of them.
https://www.youtube.com/watch?v=tOYq0u-Okqo
And how its done. All banks perform basically in the same way. It’s not national it is Global.
https://www.youtube.com/watch?v=XcGh1Dex4Yo
The way to reduce the mess we are in is to follow the format first used by Roosevelt in the US after the collapse in 1929.
https://www.youtube.com/watch?v=1he33BcV2H0
QE is not for europe, its for the federal banks , wake up its a farce..
Federal banks have trillions in derivatives in oil, and i just so happens that oil is way down and the banks stand to loose trillions . Just another smokescreen..
No wonder the swiss jumped ship…good for them!!
Of course i agree with this mecanism that will be launched, by ECB. It was about time to ECB, starting to help The Member States in needs. The regulation of the economic system also beg for a real and strong decision by ECB. Mario Draghi, have a quick reaction by starting to implement the Quantitative Easing Programme which is going to improve and give a very important contribute to the european financial system. This will be similar as Eurobonds but the major detail that we all have to retire from here, its this courageous decision by someone that doesn’t want to be like a simple spectator, and watch the eurozone going down. This measure , in my modest opinion, will “relax” the markets and put a brake in speculators.
BCE has the power to create or eliminate money… so is the GOD of money… this power can not be given to few lunatics and economists… i would prefer a servomechanism or a computer program to take the decisions, supervised by hackers and under OPEN SOURCE code. Modifications of the sofware disussed in parliaments etc… one day we will see, since them,.. these people would continue playing with us and our economy…
huos policy ?
You should learn from what happened in Japan and not make the same mistake.
Another bank bailout , oil has crashed and derivates with it. Banks have trillions in oil derivative holdings. Do the math…
The taxpayers wont see a penny..Just more debt.
Every central bank must do that.
the fact that you even discuss about it shows that a nothing is working properly in the monetary union.
And anyway it’s to late, the best draghi can do, is to keep this vegetative status for a while.
You must be rich then, as these programmes benefit the rich (buying/guaranteeing their assets) and end up hurting the poor and middle class (via higher inflation).
?mmediately to save the E.U.
Too late to debate….
yes, it should do it as much and as quickly as possible, especialy for the countries that suffer tax escape from EU laws about ficality competition .
Robbing you is illegal as per the law, but seeing as you support violating laws and treaties, please tell me your address.
The Eu court said that it was legal. And it’s good so we can get better economic for all Eu countries
No it didn’t actually, did you even read that opinion? It was about OMT, and I question the partiality of the Spanish atty gen who gave the opinion, which I suspect was influenced by pressure fro the Spanish government.
Read article 123, Treaty of Lisbon.
Article 123 of the Lisbon Treaty:
Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
Article 123 of the Treaty of Lisbon, as demonstrated by the actual treaty text above explicitly forbids what they have announced today, they are not allowed to buy bonds, nor are national central banks allowed to do so.
And furthermore, it doesn’t work. QE only ever enriches the rich as so clearly demonstrated in the USA. It does nothing for the economy as central banks do not generate economic activity, trade or anything. And low inflation is good, not bad.
In the long term, only population growth drives economic growth. Countries with low or no population growth will have low or no economic growth. See also Japan as a case in point.
What’s the matter, EU-philes, I thought you all said the Lisbon Treaty was so great? So why don’t you complain at this blatant violation? What will be the end result of this is that the poor and middle class end up suffering (via inflation) for these all too transparent handouts to the rich.
Well said
Yeah, tons of more basic laws have been violated in EU during this crisis. Why bother with this one?
I would request an investigation into contacts and ties between Mario Draghi and Wall Street, particularly Goldman Sachs. I feel that the ECB is not independent but in fact takes orders from Wall Street.
I agree that the ECB should buy government debt despite the prohibition under article 123 TFEU, because it’s the stability of the euro zone at stake and if the BCE buys this debt will be a sign to create calm and confidence in the markets, but also buy the debt is not enough, the austerity measures should be replaced by a policy of sustainable growth. In fact, I think the ECB should did this since the beginning of the crisis to drive down the yields and give oxygen to Member States to keep borrowing in their markets and avoid the risk of default, like Greece and the rest of the PIIG countries which are struggling with their sovereign debt higher (the austerity didn’t solve anything), high rates of unemployment, their human resources leaving their countries because they don’t see any future, and how a country can grow without qualified human resources? In case of doubts, may be this issue should be decided by the ECJ, to avoid any political crisis and doubts on its legitimacy, but I believe the EU needs a strong central bank to solve this crisis once for all.
Buying government debt only benefits the rich as it always has. See Japan, Britain and the United States as examples. Zimbabwe is another case in point, and of course the all-time-infamous example: the Weimar Republic.
I repeat: this has never benefitted the middle class and the poor. Never, not once. And as stated, they actually want to drive up inflation, which disproportionally hurts the poor and middle class. So do you support these covert wealth transfers from poor to rich?
And as for your ‘do it despite that it is illegal’, can I rob you of your money even though robbery is illegal? Because that seems to be your argument: things that are illegal should be done if the people doing it deem it necessary.
And as for economic growth: countries with low or no population growth have low or no economic growth. This ECB action (illegal as it is) will do zero for economic growth. Economic growth only comes from more consumers, not from more debt.
Suddenly it appears it is now all change on the oil front. Davos and all that, along with the death of a Saudi King.
http://www.dailymail.co.uk/news/article-2922592/Has-Saudi-Arabia-s-King-Abdullah-died-battle-pneumonia.html
However, what we are not really following is, what this move means to the average man in the street. How does inflation or lack of it affect him? How does the ECB bunging a QE of a trillion make it better for all of us?
http://www.theguardian.com/business/2015/jan/22/ecb-boosts-eurozone-mario-draghi-kickstart-growth
https://www.youtube.com/watch?v=lRJmTsj2s_8
It’s about time. What’s not to copy Obama’s already proven success? It’s all due to Europe’s lack of political unity that it failed to take any decisive action for too long.
Proven success? You mean how poverty went up and the median wage went down? And especially, how the US rich are richer than at any point in the last 40 years? Goodbye medium range paid jobs, hello low wage jobs?
Pray tell, where’s the success? A record of 50 million people on food stamps.
This kind of thing always benefits the rich (who hold the assets being bought) and hurts the poor and middle class (who are disproportionately hit by the increased inflation).
The ECB bunging of a QE of a trillion isn’t meant to make it better for all of us, just the rich. And you’d be a fool to believe otherwise as that is all QE has ever done in history. Zimbabwe and the Weimar Republic being the most prominent examples.
It is laughable to start QE offering it in accordance to NATIONAL levels of participation at ECB and via NATIONAL Central Banks. Such a Quantitative Easing (QE) is the signal that the single currency is heading to an ordinary dissolution of the euro. At a time when
a) Germany borrows money at negative interest rate and rides a surplus to the expense of the rest of the EU free trade area members (especially the ones that share the “common” currency)
b) the periphery is dumped to depression and capital drain (not only monetary, but human also)
the real matter is the existence of the free trade area itself.
The political change of regime in Greece means that Germany has two options:
a) to accept the QE as a mechanism of redistribution of capital to the economies more stroken by the crisis (peripheral EU countries) and in need of capital on a EUROPEAN rather than NATIONAL basis
b) to get out of the EU or to turn its economy from net exporter to net importer in order to maintain the Union (the free trade area)
There is also a third option, that of the political grand-father of Gauleiter Merkel: to impose the German imperium on the periphery via undemocratic means (already done in November 2011 against the Hellenic Democracy – Referendum? Verbotten!). However, fortunately, the 4th Reich does not have the means Hitler possessed in order to butcher one more time the peoples of Europe.
PS The first ceremonial gesture of newly elected Greek PM Alexis Tsipras was to visit Kaisariani (suburb of Athens) where the German occupation army executed almost daily Greek civilians as reprisal to losses in battles with the Greek partisans (the bloodiest in May 1, 1944 – 200 two hundred hostages). The question of German WW II reparations to Greece (7,1bn USD – 1938 prices) is on the table as well as the ones regarding the Occupation Loans from the Bank of Greece (5.6mn golden GBP, 1942) and the compensation to the victims of German brutality during occupation (6/4/1941-9/5/1945). Greece is not part of the Reunification Agreement and does not write off the above German debt.-
ECB is no independent central bank.It plays politics.It is a German central bank and it behaves as a bully.
Euro is a farce.