Brussels, 04/12/2014 (Agence Europe) - On Thursday 4 December, the ECB asked its staff to speed up preparations for the new unconventional measures it may adopt early next year, if it notes a further deterioration of the economic situation of the eurozone.
Compared to September, we have revised our growth and inflation forecasts “substantially downwards”, said the president of the ECB, Mario Draghi. In the ECB's view, the average growth in eurozone GDP will be 0.8% in 2014, 1% in 2015 and 1.5% in 2016. Inflation will reach 0.5% in 2014, 0.7% in 2015 and 1.3% in 2016, whereas the central mission of the ECB is to keep the annual increase in prices at a level close to that below 2%. These inflation projections “do not incorporate the fall in oil prices over the last few weeks”, Draghi warned.
Faced with a further fall-off of the economic situation, the ECB Governing Council reiterates that it is “unanimously” prepared to use additional unconventional instruments to comply with its mandate. This initiative would lead to altering “early next year, the size, pace and composition of our measures” already taken (record reduction of interest rates, massive buy-back programme for asset-backed securities and covered bonds). The Governing Council has therefore requested that ECB staff step up the preparation of measures, to include a securities buy-back programme (“QE, European style”).
This European-style QE is part of our mandate, whereas failing to respect our mandate in terms of inflation “would be against the law”, Draghi explained. He went on to state that in the current economic climate, an excessive period of very low inflation would be tantamount to a tightening of the monetary policy stance of the ECB. At its first meeting at its new Grossmarkethalle offices in Frankfurt, the ECB therefore discussed several options for QE, European style, which could include a major buy-back programme for all types of assets (company bonds, sovereign debt), with the exception of gold. “We do not need unanimity” to launch a measure of this kind, but it could be put together in such a way as to achieve consensus, Draghi said. The Bundesbank, on the other hand, takes the view that a mass buy-back of sovereign debt would effectively constitute the indirect financing of the member states, a measure which would be incompatible with European treaties.
The ECB, which chose on Thursday not to change its lending rates, approves of the Juncker plan designed to attract €315 billion in investments within the EU over three years (see EUROPE 11205). It is not the Central Bank's responsibility directly to finance this plan, but through its monetary policy and its role as European supervisor, it will ensure healthier banks that could be of great help in making a contribution, Draghi said. (MB)