On Thursday 13 December, the European Central Bank confirmed that the quantitative easing (QE) operation for the massive repurchase of mainly public securities will be completed at the end of December 2018.
Since November, the monthly rate of redemptions via QE has been reduced to €15 billion, whereas it had reached €60 billion at the launch of the operation in March 2015 to combat the risk of deflation after the financial crisis (see EUROPE 11236).
According to Mr Draghi, QE has been the "only driver of this recovery" in the eurozone with its ability to substantially reduce the financing conditions for companies and households. The President of the ECB considered that quantitative easing is now "permanently" part of the toolbox of monetary policy instruments available to the monetary institute, especially after the "very important" judgement of the European Court of Justice which considered QE to be compliant with EU law.
By 7 December 2018, the European System of Central Banks had repurchased more than 2, 100 billion of mainly public securities since the start of the operation in March 2015.
Despite renewed uncertainty about the strength of economic growth, the ECB expects the inflation path to converge towards the medium-term objective of close to, but below, 2%, even after the end of QE. The conclusion of the debate on the risks to the economy is as follows: “Continuing confidence with increasing caution,” Mr Draghi said.
Monetary policy will therefore remain accommodative as long as necessary. In addition to keeping key rates at current low levels until at least summer 2019, the Frankfurt Institute announced on Thursday that its policy of reinvesting acquired private and public securities, particularly via QE, will continue over an extended period of time after an initial rise in key interest rates.
If markets believe that rates will not rise again before 2020, it at least has the advantage of keeping them low, said Mr Draghi.
On Thursday, the ECB revised its growth forecasts for 2018 and 2019 slightly downwards, mainly due to risks related to geopolitical factors, protectionism and financial volatility. According to the ECB, GDP growth in the eurozone is expected to increase by 1.9% in 2018, 1.7% in 2019 and 2020, and 1.5% in 2021.
Regarding inflation, the European institution has revised its forecasts upwards for 2018 and downwards for 2019. The chosen trajectory is as follows : 1.8% in 2018, 1.6% in 2019, 1.7% in 2020 and 1.8% in 2021.
EMU Mr Draghi hoped that the Eurogroup's work on deepening Economic and Monetary Union (EMU) will be endorsed on Friday by the Euro Summit. Despite the reform of the European Stability Mechanism and the creation of a safety net for the Single Resolution Fund, EMU "is incomplete and remains fragile," he said.
In his view, more needs to be done before we can say that we have a Banking Union in the eurozone like in the USA or Capital Markets Union. But, to reduce financial risks, completing both would make a "fiscal union less urgent,” Mr Draghi said. (Original version in French by Mathieu Bion)