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20/01 – More Questions for the ECB over Quantitative Easing

The European media continues to give wide coverage on the ECB’s likely decision to announce, on Thursday, a quantitative easing programme (QE) aimed at ending the threat of deflation and putting the EU member states on the path to solid economic growth. Several media report that the QE programme generates doubts and is mostly seen as a last chance for Europe.

The ECB faces “a crucial test”, for “its powers” and “on the euro”, write US newspapers The WSJE and the INYT respectively. L’Echo says that we are on the eve of an “historical day for the euro area.” “This week is full of hope and danger for the euro area”, writes Le Monde’s Marie Charrel. Ms Charrel quotes an MEP who says that “this is the ECB’s final cartridge” and also asks “what if it doesn’t work?”. Le Monde’s editorial says that Mario Draghi’s new anti-deflation cocktail would guarantee a cheap euro to boost exportation.

It also stokes Germany’s fear of QE potentially encouraging the least rigorous countries (Greece, France) to loosen their budgetary discipline. The editorialist shares this opinion, by underlining that “QE is not a magic anti-crisis remedy”. Les Echos reports that the Bundesbank is reportedly manoeuvring to limit the scope of the ECB’s sovereign debt purchasing programme. On French TV iTélé, UMP MP Eric Woerth said that if this decision is confirmed, the ECB “will reach the limits of what it is allowed to do.” “It is the last chance as far as European policies are concerned,” he added. For socialist MP Karine Berger, it is “a turning point,” with the idea that “monetary policy can have another target aside inflation”. French Journalist Guillaume Duval warned that Frankfurt may disappoint the markets if it announces measures more limited than expected.

In Süddeutsche Zeitung, Markus Zydra comments on the ECB’s central role in the European economic crisis. After Mr Draghi’s 2012 promise to do whatever it takes to save the euro, today, it is about creating financial impetus for Europe’s economy. Along the same lines, Clemens Kindermann comments in a programme of Deutschlandfunk that the ECB is facing its most serious practical test, which it may fail. She reckons that Frankfurt should not pay so much attention to European governments’ approval, but ensure that its tactic is working. El Pais also underlines that all eyes are on the ECB President and says that QE is the most drastic of all the unconventional measures hitherto implemented by the European central bank.

Economist Emilio Ontiveros discussed the ECB’s bond-buying plans on Cadena Ser’s Hoy por Hoy news progamme, saying a QE programme is a right decision which nevertheless comes too late. In De Tijd, economist Geert Noels shares this point of view as well. In light of the consequences the QE has had on the Japanese and American economies, Mr Noels thinks that, while claiming to do the opposite, the ECB is applying the same measures Japan took 10 years ago. He considers QE to be the economic equivalent of homeopathy. The only true alternative for this “hocus pocus” remains structural economic reforms.

Público reports that the IMF is pessimistic about euro area’s economic performance, despite the low oil prices and the expectations of QE. The IMF reckons that such measures will not be enough to re-launch solid economic growth, as investment perspectives are weak. mentions Angela Merkel’s opinion that ECB measures cannot replace much-needed reforms. An article in Repubblica, Federico Fubini notes that Bundesbank President Jens Weidmann might agree on proposed bond purchasing plan which would limit the number of bonds that a central bank could purchase to 20% or 25% of a country’s outstanding debt. This solution was negotiated by Mr Draghi, Ms Merkel and German Finance Minister Wolfgang Schäuble,notes Stefania Tamburello in an article in Corriere della Sera.

Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem stated, in an interview with Het Financieele Dagblad on Saturday, that he would not be against QE as it would give banks “more room to invest and finance companies”. Dijsselbloem’s spokeswoman Simone Boitelle however adds that Mr Dijsselbloem also said that some of the reasons for QE had been removed by the recent fall in the value of the euro against other major currencies. In addition, she said the that Dijsselbloem was not confident that QE would have a significant effect.

In more positive comments, some Italian media say that some objections regarding the ECB unconventional measure are unfounded, believing that inflation will not get out of control, and that launching QE will not block reforms. A few media speak of a QE programme worth €500 billion. Meanwhile, an editorial in Expansion warns that a Syriza victory in Greece could partly undermine the impetus that a QE programme would give to the European economy.© European Union, 2015

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