ECB surprises markets with unprecedented measures

European media report widely on the ECB’s announcement of new measures on Thursday afternoon. Many sources point out that ECB President Mario Draghi exceeded expectations by increasing quantitative easing to €80 billion a month, cutting the main interest rate to 0% and its deposit rate to -0.4%, providing ultra-cheap loans for banks. Without these measures, the eurozone would have faced “disastrous deflation”, Mr Draghi said. Financial markets initially rallied in response to the measures, but market sentiment soured rapidly when Mr Draghi signalled that interest rates probably won’t fall any lower, the Wall Street Journal indicates.

Reactions to the ECB’s announcement in the media are mostly sceptical. In German Süddeutsche Zeitung, Alexander Hagelüken strongly criticises the new measures taken, warning that “the euro in its current configuration is not viable in the long-term”. He further states that Mario Draghi is failing to achieve growth, that his policy increases the divide between rich and poor and that he is in the process of “ruining Europe’s future”. In Handelsblatt, Daniel Schäfer agrees that Mr Draghi is heading further up a dead end, arguing that the markets no longer trust his measures and denouncing the ECB’s “almost autistic fixation”.

Moreover, Kurt Vansteeland writes in Belgian De Tijd that the message sent by Mr Draghi to the European national authorities is that they do not need to urgently take structural measures to solve the euro area’s problems, which is a bad signal. In the UK, a Daily Telegraph editorial describes yesterday’s moves as “desperate”, adding that it also raises the prospect that the ECB is now out of ammunition, an opinion shared by The Times’ editorial. In addition, the leader writer of Spanish El País argues that the ECB yesterday delivered a “coded message” to Berlin, hinting that the margins of monetary policy have been reached and non-conventional measures will not be enough to pull the economy out of stagnation.

Moreover, Swaha Pattanaik and Neil Unmack write in the International New York Times that corporate bonds may now become so tempting that investors may ignore companies’ financial health. In Portugal, Jornal de Negócios adds that the ECB’s policy may have the perverse effect of feeding bubbles, and exposing even more the fragilities of the Eurozone’s banking sector. Similarly, economist Geert Noels told Belgian daily Le Soir that the measures could lead a total collapse of the financial system.

Writing in French economic newspaper Les Echos, Guillaume Maujean offers a nuanced point of view and states that the ECB’s announcement could be interpreted either as “a stroke of genius, an admission of failure or a headlong rush”, praising Mr Draghi’s strategic manoeuvring but highlighting that these new measures also stress that everything done so far has failed. In the UK, The Times argues that while the steps taken by the ECB yesterday are the “right course”, it does highlight again the “weaknesses of the Eurozone economy and the folly of the currency union’s original design”.

Writing in the International New York Times, Neil Irwain warns that negative rates may encourage more lending and economic activity, but could also cause people to withdraw their money from banks and throw financial business models into chaos. In an interview with Belgian newspaper De Tijd, former governor of the National Bank of Belgium Luc Coene advises the ECB to think about whether 2% inflation is still a realistic objective, while granting that the ECB’s measures may strengthen the granting of loans. Meanwhile in Portugal, Joana Petiz writes in the Diário de Notícias editorial that the announced measures will probably not be sufficient to tackle Europe’s weak economy, and that companies and banks now have to do their part.

The ECB’s measures also have their advocates, such as Jean-Pierre Robin in Le Figaro. According to him, these measures “mark a turning point”, as they provide the necessary means to relaunch bank lending in the euro area. In Portuguese Jornal de Negócios, economist Cristina Casalinho also praises the ECB new package of measures. In Slovakia, Dailies SME and Pravda note that the ECB policy is likely to make mortgages and other loans even cheaper. A Financial Times editorial backs the ECB’s latest efforts to boost demand in the eurozone, and expresses the hope that the markets give Mario Draghi’s “bold approach” time to work. The Wall Street Journal further reports that the new measures “exceeded expectations and showed the ECB still has the power to surprise,” said Marchel Alexandrovich, an economist at Jefferies in London.