Brussels, 18/05/2015 (Agence Europe) - The President of the ECB, Mario Draghi, has acknowledged for the first time that the mass operation to buy back public and private debt (“quantitative easing”), which was launched by the European institution in March, could have harmful “side effects”.
“A prolonged period of accommodative monetary policy can come with side effects. And the fact that our policy has so far proven effective should not blind us to them”, Draghi said on Thursday 14 May, at a speech he gave at the IMF headquarters in Washington. He referred to two types of side effects regarding the “allocation” and “distribution” of monetary policy, which must be analysed and understood in order to minimise the consequences.
Criticism has been voiced that creating highly flexible financing conditions could bring about a problem for the allocation of resources, increase excessive financial risk-taking and delay the consolidation of the balance sheets of the financial institutions, ultimately having a negative impact on financial stability. “I can of course see the logic to these arguments: a long period of very low interest rates is potentially conducive to imbalances”, Draghi recognised. Other concerns expressed relate to the extremely low interest rates, which will penalise savers, whilst the increase in the price of assets is mainly of benefit to the richest categories, thereby increasing the equality gap. The former Governor of the Banca d'Italia acknowledged that the ECB's accommodative policy favours the owners of financial assets, as their value is increasing, but played this statement down by stressing that the policy in place also makes borrowing cheaper for business and consumers, ultimately helping to kickstart the economy.
Since the 'quantitative easing' programme was launched in March, the ECB had bought up more than 108 billion euros' worth of public debt as of 8 May, according to the data published on its website. This operation, which will see 60 billion euros' worth of public and private debt bought up every month, will run until September 2016, or at least until the inflation trajectory comes back into line with the Frankfurt-based institute's objective, which is to keep inflation close to but below 2% in the medium term (see EUROPE 11268). Having fallen by 0.6% in January, inflation has gradually started to take off again, standing at 0.0% in April, according to the latest figures of the statistical office of the EU (Eurostat). (Mathieu Bion)