by Chris Becker
The ECB President, Mario “whatever it takes” Draghi is letting the QE cat out of the bag stating last night that he wants governments to do some heavy lifting on restructuring while he grabs the “unconventional” printing lever:
The ECB stands ready to use additional unconventional tools and tweak its existing efforts to spur inflation and growth in the euro zone if needed, ECB President Mario Draghi said on Monday, speaking to the economic and monetary affairs committee of the European parliament.
Lower than expected take-up of the initial tranche of loans last week has fuelled expectations the ECB may eventually take more radical stimulus measures, such as buying large amounts of sovereign debt in a policy known as quantitative easing or QE.
Of course, QE is off the table due to the REAL centralised power – the Germans. That leaves structural reforms, which the Germans genuinely want, but don’t want to pay the price for:
“As I have indicated now at several occasions, no monetary – and also no fiscal – stimulus can ever have a meaningful effect without such structural reforms,” he said.
He said the ECB had “done a lot over the past three years”.But Draghi questioned whether governments had made use of the opportunity to reform.
“If you look at these amazing savings that these governments have actually had because of our monetary policy decisions that the ECB has taken with price stability objective in mind only. Where have these savings gone? Where have they gone?”
Indeed, it seems the Europeans have wasted a “good” crisis to solve the underlying fragile underpinnings of the currency union, namely the distinct lack of competitiveness between north and south, and the chronic structural unemployment that has created.
It’s all well for central bankers to want “animal spirits” to takeover, but without a definitive uplift in aggregate demand, this is just pissing in the wind.
So when in doubt, off to the printers to create inflation! With inflation at an error-rounding 0.4% and the usual central banker creed of “just 2%”:
A more proactive way of injecting funds would be the program to buy asset-backed securities and covered bonds, details of which are scheduled to be unveiled next month. The ECB president has so far left open the option of large-scale sovereign-bond purchases, or quantitative easing.
“Outright purchases will increase the size of the ECB’s balance sheet, but the additional risk exposure will be limited,” he said. “We stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary.”
You know if you say unconventional often enough it sounds conventional.
Perhaps instead of the same measures implemented by Japan and the United States, a more unconventional response would be wipe clean consumer and sovereign debt and start again. Since that’s never going to happen (by design, maybe by default), and the disparate nations will not get a fair answer from the Germans, there really is no action left to take.