ECB close to printing money to battle spiraling deflation
The bank is planning a “non-standard” monetary policy which will purchase bonds and asset-backed securities, including sovereign debt, but not gold. It is very similar to the US stimulus scheme for easing the money supply.
ECB President Mario Draghi said the Governing Council will reassess the monetary stimulus package “early next year.” The bank will also expand its balance sheet to €3 trillion, similar to 2012 levels.
In the press conference following the council meeting Mario Draghi was asked when the bank is going to make the move and sidestepped saying,“You are in a very intelligent way trying to extract from me the date of the next decisions, and you won’t get it.”
Draghi: QE has been shown to be effective in the US and in the UK, in Japan it's more complicated
— ECB (@ecb) December 4, 2014
The bank has waited until the very last hour to pull the trigger on QE, not because the economy doesn’t need it, but because of dissent from central bank governors and ECB executive board members.
Germany, the region’s largest economy, has staunchly opposed a decision to print money, as it believes the program infringes on an individual nations’ monetary policy.
Last week, Sabine Lautenschlaeger, Germany’s appointee to the ECB’s Executive Board, said now was not the time for state bond buying.
However, under the Maastricht Treaty the ECB is allowed to buy government bonds in the secondary market.
Suffering from weak real GDP, which only rose by 0.2 percent quarter on quarter between July and September, Draghi is struggling to fulfill his promise to do “whatever it takes” to save the eurozone. However, the currency will weaken once the bank starts printing money, as more money in circulation will push up inflation.
Inflation fell to 0.3 percent down from 0.4 percent from last month. It has been rapidly dropping since it peaked at 3 percent in late 2011. The ECB still retains a 2 percent inflation target goal.
The bank left interest rates unchanged at 0.05 percent, a record low, after cutting rates to rock-bottom levels in September. Draghi said they had hit “the lower boundary.”