As the ECB prepares to ramp up QE this week, should it be doing even more to boost growth in the Eurozone?
Vicky Pryce, who is a board member of CEBR, on City PM’s shadow MPC and author of Greekonomics (Biteback Publishing), says Yes.
When Mario Draghi revised his forecast for the Eurozone economy down from 1.7 per cent to just 1.4 per cent, he made it clear that risks remained on the downside – reflecting world economic and geopolitical uncertainties.
The QE programme, which increased the monthly bond purchases by €20bn to €80bn to March 2017, could last longer to get inflation close to the 2 per cent target. And he has extended it to purchases of eligible corporate bonds to improve the transmission mechanism into the real economy.
Of course, Draghi could further expand QE in size and duration, but this isn’t all he can do. He has already cut the main refinancing rate to zero and the deposit rate to -0.4 per cent. These are “conventional measures”, and he can cut again if necessary. He has introduced a new bank lending facility at low, even negative interest rates, to encourage banks to lend more. This could be further enhanced. Some extra fiscal stimulus would be helpful, but the European Central Bank’s cupboard is by no means empty yet.
Tim Price, manager of the VT Price Value Portfolio, says No.
The primary objective of the European Central Bank (ECB) is to maintain price stability in the Eurozone. This objective alone may be beyond the ability of any central bank in today’s globalised financial world. But the ECB should remember that it has no mandate to deliver “growth”. Leaving aside the question as to whether any bureaucratic entity is up to that task, it is a policy objective for politicians, and not one for unelected central bankers.
If Europe’s politicians have chosen to abdicate their own economic responsibilities, that is no excuse for the ECB to overstep its authority. Mario Draghi’s increasingly desperate monetary experimentation amounts to mission creep of the most dangerous form. There was a time when central banks were charged with protecting us against inflation, not trying to boost it. Deflation is an existential threat to Europe’s heavily indebted governments. If its arrival forces the over-mighty European state to retrench, we should all be grateful for it.