ECB ready to launch a historic offensive against the threat of … – Les Echos

ECB ready to launch a historic offensive against the threat of … – Les Echos

The National Bank is expected to announce today an unprecedented debt buyback program in the eurozone.
This program was fought to end by Germany, which means that states continue their reforms.

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We know Today after the showdown that will contrast the way the European Central Bank to the German government. The central bank is ready to announce this afternoon, a massive program of debt purchases (the “QE”). Bloomberg and the “Wall Street Journal” yesterday evoked a plan of 50 billion euros monthly, on at least twelve months. Period could be extended to eighteen months. Initially expected by observers to 500 billion euros, the “QE” could reach 900 billion. He must remove the threat of too low inflation in the eurozone.

If Berlin is not against this, everything will depend on the terms decided by the central bank. Angela Merkel wants especially “prevent the action of the ECB may appear to be a way to relegate to second place what needs to be done (in Europe) for fiscal consolidation and competitiveness” , a- she hammered Monday in Frankfurt.

For several months, Mario Draghi, ECB president, had to use education and diplomacy in confronting internally the German Bundesbank, opposed in principle to the new program. He took the opportunity, there are eight days at a conference in the German capital, to meet the Chancellor and Finance Minister Wolfgang Schäuble. According to the press, Mario Draghi would have presented their action plan by including options that will spare the German public.

One of them would be to bypass the mutual insurance scheme of risk between all central banks, provided in the articles of the Eurosystem, to achieve a dose of each for himself. Specifically, the assumption would be that each central bank buys back its own debt, to avoid the risk of contagion. But this option, which would send a signal of “fragmentation” of the eurozone, has been heavily criticized in other European capitals.

A matter of “timing”

The ECB is the last to launch a massive operation “quantitative easing” after the US Federal Reserve, the Bank of England and the Bank of Japan. The expectation of this plan has had some effect on the European currency, which recently fell to below $ 1.15. Later than the others, this intervention has a context that can be beneficial to consumers and businesses due to the lower cost of raw materials, which – if they increase deflationary pressures – can also promote growth and consumption, especially if the credit is easier to obtain. Because by buying sovereign debt, the ECB seeks to push investors into riskier assets, which may help support the economy of the euro zone.

It remains to know the amounts and timing of the asset purchase program. The “QE” was widely discussed at the ECB in numerous internal meetings and the question of “timing” is very important. There is some urgency to act, given the market expectations. Inflation in fact increased in negative territory in the euro zone in December (- 0.2%) and should remain on the beginning of the year. But Mario Draghi should also remember that QE makes sense only if there is a side for reforms and fiscal discipline in the states concerned. In view of what may come of the polls Sunday in Greece, where the anti-austerity Syriza party is leading in the polls, the party seems far from over.

Jean-Philippe Lacour, Les Echos

Correspondent in Frankfurt