ECB to pump a trillion euros in 18 months into economy

By Matthew Brown

Blog: ECB to pump a trillion euros in 18 months into economy  

Overnight, The European Central Bank (ECB) took the historic decision to launch a massive government bond-buying program that will inject hundreds of billions of euros into the economy over the next 18 months.

The program will incorporate the asset-backed securities purchase programme (ABSPP) and the covered bond purchase programme (CBPP3) that were launched late last year and combined the monthly purchases will amount to €60 billion ($A85 billion).

The bond buying program is expected to run until at least September 2016 and the Governing Council of the ECB, led by president Mario Draghi, believes the program will assist with its aim of achieving inflation rates close to 2% over the medium term.

Politically the ramifications are massive with Reuters[i] reporting that one euro zone central banking source said five policymakers opposed the expanded asset-purchase plan including the central bank chiefs of Germany, the Netherlands, Austria and Estonia, along with Executive Board member Sabine Lautenschlaeger, a German. Guntram Wolff, head of the Bruegel think tank, told Reuters that the plan’s size was impressive. “But the ECB has given the signal … that its monetary policy is not a single one. That’s a bad signal to markets and a bad signal to everybody in the euro zone.”

To my way of thinking, it seemed pretty certain that the ECB had some big plans in mind, but €60 billion a month is an enormous injection. To put this announcement in context, in the US, its quantitative easing program exceeded $A8 trillion over a five year period.

It’s a case of what was good for the American goose, will hopefully be good for the European gander. QA seems to have helped the Americans back from the depths of the GFC. However with so many stakeholders involved, and the Germans notable dissenters, the ECB will have a job on its hands over the next 18 months to make this latest rescue plan work.

Matt Brown, CEO and Founder, Your Corner


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