End of an era as ECB set to withdraw crisisfighting stimulus
FRANKFURT AM MAIN: A chapter of eurozone history will come to a close Thursday, with the European Central Bank widely expected to withdraw a key element of support for the economy while reassuring observers fearful of the growing risks.
The past three years have seen the Frankfurt institution ward off the threat of catastrophic deflation – a crippling downward spiral of prices and activity – by buying 2.6 trillion euros ( US$ 3.0 trillion) of government and corporate debt.
Policymakers say the programme has boosted growth, helped create millions of jobs and set inflation back on the path towards its target of just below 2.0 per cent.
But it has also politicised the bank like never before, as disciples of fiscal rectitude in Germany and other northern countries claimed the scheme indirectly enabled spendthrift policies in the south.
The ECB “should have ended its quantitative easing ( QE) programme and its negative interest rate policy a long time ago,” the director of the Flossbach von Storch institute in Cologne, Thomas Mayer, told business daily Handelsblatt.
On Thursday, central bankers “will turn the page on QE, since there is no longer a serious risk of deflation” – a harmful downward spiral of prices braking activity – said economist Bruno Cavalier of Oddo BHF.
Price growth slowed from 2.2 per cent in October to 2.0 per cent last month in the 19-nation single currency area.
However ‘core’ inf lation excluding volatile food and energy prices remains sluggish at around one per cent.
That’s one reason why analysts widely expect the central bank to play up its other tools for stimulating activity: interest rates stuck at historic lows “at least through the summer” of 2019 and reinvestments of the proceeds from its massive debt pile.
Soothing words will be needed as the ECB’s growth forecasts – for the first time stretching out to 2021 – will likely be revised downwards this time around, following a growth slowdown in the third quarter this year. — AFP