Time for Draghi to realise that QE is the only way
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.