Thursday, January 22, 2015

Bond purchases: The ECB is serious –

Bond purchases: The ECB is serious –

 Mario Draghi has kept his word: two and a half years ago, July 26, 2012, he promised in a speech to the London investment bankers to do everything possible to save the euro. After several other experiments with interest rates near zero, credit programs and a Geldschwewmme of giant proportions, the European Central Bank now uses a quasi recent media: You want to buy en masse bonds issued by governments and companies in the euro zone

 At the press conference following the meeting of the Governing Council on Thursday (01/22/2015) in Frankfurt said ECB chief Draghi, you’ve decided to purchase a monthly bonds issued by governments and companies with a total value of 60 billion euros. “The program will run until at least September 2016. In any case we will just run it for so long until we reach the two percent inflation target of sustainably.”

  Really large sums

 The central bank is therefore likely to pump more than 1100 billion, or 1.1 billion euros in the markets. This represents more than 10 percent of economic output in the euro area. The central bank is to implement the gigantic program print new money. So she buys banks from risky securities, so, for example, government or corporate bonds. Financial institutions – the plan should then pass the fresh money in the form of loans to businesses and consumers

 “The ECB has the hope that contributes to economic recovery in Europe,” German Economics Minister Sigmar Gabriel (SPD) said on the sidelines of the World Economic Forum in Davos DW. “Of course we must all try to support this development.” The federal government is doing this by going to support the investment program of the European Commission. “For we must not transferred to the ECB alone the task of taking care of growth and employment.”

  exceeded mandate?

 In fact, the ECB has mainly different from the US Federal Reserve, the task of keeping prices stable – to stimulate and not the economy. For this reason, the ECB monetary policy already occupied the highest German court as well as the European Court of Justice. The question is exceeded, the monetary authorities their mandate? Henning Vöpel, head of the Hamburg Institute of International Economics (HWWI), sees the ECB a kind of “secret government of the euro zone and that can not go long good because the European Central Bank, of course, is already going to violate their core mandate.”

 The now announced purchase program of the ECB, he looks very skeptical. We have seen, he told DW that many other instruments already had been taken, also the interest was very low: “And we see that the money while arriving at the banks, but not in the economy, than in business on loans and for households. In that regard, it is questionable whether one can actually influence the demand for credit positive with this instrument. “

 Vöpel suspected as background rather attempts to support the prices of government bonds. “Imagine, Greece would deselected the reform policies on Sunday. Then it may be that the Greek bonds again come under severe pressure and then the ECB just need this tool to intervene to stabilize.”

  pressure for reform may slow

 Slightly more optimistic assessment Jürgen Matthes from the Institute of Economic Research (IW) in Cologne, the ECB decision. Although it is so far not a good day for Europe, because the ECB verschieße their last powder. “This shows that she is worried about the economic situation in Europe.” Some chance that the program makes a difference, it could indeed give, “but we’re not sure that it actually works because the problems with looking at credit supply and economic development, investment weakness actually lie elsewhere and need to be solved there.”

 This Matthes is in line with others, for example the farming practices Lars field. He looks taken by the purchase program the pressure for reform in countries such as France or Italy. Also savings bank president Georg driving Already referred to the program as an error. The specter of deflation, or a spiral of falling prices and declining demand, could not confirm it. “On the contrary, the consumption behavior of households is robust. The monetary and central bank policy does not have the right tools to put structures in the EU Member States ahead. That is, the European Central Bank shall perform a task for which they do not really responsible, “said driving Already on ZDF.

  peace offer Draghi

 To appease his critics a bit, Draghi also announced that the central bank will only communitarize some of the risks. A common risk liability, there is therefore in bonds issued by European institutions, which together accounted for 20 percent of the program. Government bond purchases will depend on the other hand, the share of the euro countries in the ECB’s capital. Thus, the central bank will buy mainly German government bonds, followed by French and Italian.

 Either way, even before the ECB announced its decision, the CSU Gauweiler Peter spoke up. He has already complained against other monetary policies of the Federal Reserve. The process is ongoing. He has certainly asked to prepare a precaution action against the purchase program, in the event that the federal government inaction of his attorney.


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