ECB’s Draghi Considering Large-Scale Bond Purchases
Between Mario Draghi and quantitative easing lies an obstacle course.
The European Central Bank president’s signal that he’s considering large-scale bond purchases raises the question of how to surmount hurdles from political and legal challenges to conflicts with measures announced just three months ago.
When Draghi spoke on Aug. 22 at the Federal Reserve Bank of Kansas City’s symposium, a forum at which U.S. monetary policy has in the past been announced, he said the ECB’s preferred gauge of inflation expectations has fallen.
“Draghi has to deliver some kind of next step now because saying ‘we’re no longer credible and inflation expectations have dislodged’ and not doing anything about it doesn’t work,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam.
Bundesbank President Jens Weidmann has frequently warned of the dangers of QE, suggesting the German central-bank head would take some convincing of the merits of a plan.
“There are enormous political, legal and moral-hazard constraints,” said James Nixon, an economist at Oxford Economics Ltd. in London. “The euro area isn’t a single, sovereign nation state. That’s a fundamental obstacle.”
Finance Minister Wolfgang Schaeuble said on Bloomberg Television last week that “liquidity in markets is not too low, it’s even too high — therefore I think monetary policy has come to the end of its instruments.”
Source: Bloomberg
