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“Boom! “” This is an unprecedented monetary offensive “,” it’s Christmas in Frankfurt! “ were immediately reacted specialists analysts of the institution on their Twitter accounts. Many, in fact, does not expect an announcement of such magnitude
The financial markets have also welcomed this announcement. European stock indices rose from just over 1% by mid-afternoon. And borrowing rates of France, Spain and Italy have reached historically low levels after about Mario Draghi.
Beginning in March, the ECB will buy debt securities of financial institutions in the euro area, mainly from banks. Monetary Institute will purchase via the national central banks, sovereign bonds (borrowing States), private securities (covered bonds of financial institutions) and the title of European agencies.
The amount of these purchases will be 60 billion a month, at least until September 2016, more than 1,000 billion euros in total. This is more than the expectations of the analysts, who were betting on 500-750000000000 euros.
The ECB retains freedom to pursue purchases as inflation does not improve sufficiently . The obligations of countries under the assistance program of the Troika (IMF, Commission and European Union), like Greece, will be subject to additional criteria.
- What is ? The purpose of these debt repurchases
If the terms of the plan are somewhat technical, the goal of Mario Draghi, the ECB president, is simple: it is to fight against deflationary pressures at work in the monetary union and boost growth. In December, prices actually fell 0.2% in the euro area, far from the goal of a 2% increase, set by the mandate.
“She had no choice, she had to do something, “ says Christopher Dembik, economist at Saxo Bank
Read also:. Eurozone: why traditional remedies longer work
- How Mario Draghi he responded to the German prejudices?
The battle with the Germans n ‘ has not been easy. In recent weeks, opponents and supporters of QE were thus engaged in a war of words in the German press. Just before the conference Mario Draghi on Thursday, German Chancellor Angela Merkel, who was at the World Economic Forum in Davos, still wished to recall that the ECB’s decisions should not “to deviate from the path of reforms “ European countries
Read also:. The Germans were opposed to the end to the action of the ECB
If Mario Draghi has come to prevail, however, he took care to place the nature of safeguards to reassure Berlin. The Germans are indeed very reluctant to purchase of debt, considering them not only ineffective, but especially dangerous. They fear that this will indeed encourages less serious States to abandon fiscal discipline, since they will have the guarantee that the ECB will buy their obligations, no matter what.
As a result, government securities purchases will be made on the basis of the participation of national central banks to the ECB’s capital, where Germany and France in the lead. These purchases do not unduly encourage the southern countries of the euro area to the other side, as the Germans were concerned.
In addition, only 20% of the securities purchased will be subject to risk sharing. A symbolic measure than anything else. “I must say I am surprised that this has become so important today, it should not,” has also swept Mario Draghi. The decision to launch on Thursday a massive redemptions of public and private debt program was taken “a large majority” , said the President of the ECB.
- What are the expected effects of these measures on the economy?
In theory, QE can have several effects on the real economy.
– The first effect is psychological: by showing that it takes the bull by the horns, the ECB hopes to influence expectations of inflation and growth related markets. If the financial and wider, all economic agents do not believe in a deflationary scenario, in large part self-fulfilling, it is less likely to occur.
Read also: prices decline in the euro area for the first time since 2009
– Second, by buying government bonds, the ECB also aims to ensure low cost funding to states, for a long time. These securities purchased by the ECB will become less attractive once the same for the rest of investors, which will then be forced to turn to more profitable financial assets, such as corporate bonds. This should help, if it works, the upturn in activity
Read also: The recovery in the eurozone will be slow and moderate
– Finally,. increasing the amount of money in circulation (it is said that it is “turn printing money”), the central bank will push the value of the euro down against other currencies – particularly the dollar. . Enough to give a little boost to European exporters
Thursday, as soon as the announcement of known Mario Draghi, the euro has also resumed its decline against the dollar: 15 h 10 Paris, it fell to 1.1483 dollar, while playing moments before around 1.1620 dollar and 1.1607 dollar that it was Wednesday night.
Read also: “The decline of the euro, it is mostly a rising dollar”
In this regard, the French and Italian companies whose range of ways products are very price sensitive, should be the first to benefit. With a shade, though: the markets have largely anticipated QE, the European currency has fallen by more than 10% against the dollar since the summer of 2014
- . The measures of the ECB can they revive growth?
If analysts point out that it was important, given the decline in prices, the ECB is making this new weapon, however they are divided on its effectiveness. In the United States and the United Kingdom, where this type of debt repurchase program was used between 2008 and 2014, this has effectively supported the recovery. In Japan, where the central bank was launched in 2013, its impact, however, is very uncertain: the end of 2014, the archipelago has even fallen into recession …
Read also: ECB : very uncertain effects of the printing
With us, its effectiveness will depend largely on the rest of the European economic policy. Namely, measures that member countries undertake their part to support growth.
Junker investment plan and the greater fiscal flexibility that the European Commission has decided to grant the States will be a real plus. But it still will take months and probably years, before the euro area found a similar level of activity than before the crisis.
“The EQ can boost financial markets, but it will not repair the banks’ weaknesses, and will not replace the necessary structural reforms nor the recovery plan for investment, “ summarize the RBS analysts.
- What will be the impact of the action of the ECB daily to European households?
In any case, the repurchase program public debt announced by the ECB will have no immediate and direct impact on the lives of Europeans, particularly the French. The effects will be felt in the medium term. If the plan works, and achieved its objectives.
The fall of the euro, rising prices and especially the economic recovery that is expected should allow wages to rise again. They should also help to reduce unemployment.
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