Time for Draghi to re­alise that QE is the only way

Financial Mirror (Cyprus) - - FRONT PAGE -

The ECB has re­sponded to the cri­sis by low­er­ing in­ter­est rates (base rate) to an ex­tremely low value (0.05%) as well as a se­ries of tar­geted longer-term re­fi­nanc­ing op­er­a­tions (TLTROs) that aim to of­fer cheap loans to banks in or­der to pass them on onto the real econ­omy.

In the first TLTRO, the ECB al­lot­ted EUR 82.6 bln to the bank­ing sec­tor, while the sec­ond pro­gramme is ex­pected this De­cem­ber with forecasts of an al­lot­ment of EUR 150 bln, well be­low the to­tal tar­get of 400 bln that the ECB was pre­pared to of­fer to the banks for this year.

If this mon­e­tary tool fails to re­vive the euro econ­omy, the next step is for a broad­based sov­er­eign as­set pur­chase pro­gramme, known as QE. This was the pro­gramme that other cen­tral banks (U.S. Fed, Bank of Eng­land, Bank of Ja­pan) have used since the global fi­nan­cial cri­sis of 2007-2009. This pro­gramme helped to mit­i­gate the ad­verse ef­fects of the cri­sis, with the U.S. econ­omy now on a strong re­bound that low­ered the un­em­ploy­ment rate to 5.8% for Novem­ber.

This is ex­actly what the ECB needs to do. De­spite the ob­jec­tions of the Ger­mans,

Mario Draghi needs to step up and use such a pro­gramme to re­vive Europe’s ail­ing econ­omy while at the same time it will ad­dress the prob­lem of low in­fla­tion (or even de­fla­tion) that can be very dam­ag­ing for any prospects of growth in the near fu­ture.

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