Date: 01/22/2015 19:11 clock
“quantitative easing” is what the ECB does now – and it’s about buying bonds worth 1.14 trillion euros gigantic. How does it work? Will this work? And why now? tagesschau.de answers the most important questions.
What does “quantitative easing”
If a central bank wants to stimulate the economy, they usually lowers the federal funds rate. Commercial banks can then get cheaper money at it – and pass on the favorable financing terms to consumers and businesses. The problem: In the euro zone, the key rate is close to zero for a long time without the economy picks up. Unconventional measures such as billionaire special loans for the banks (ECB chief Mario Draghi called the program jokingly “Big Bertha”) or the last of the purchase of special bank bonds have the situation has not improved substantially.
Therefore, the ECB now reaches the ultimate weapon in the arsenal central bank – “quantitative easing” (QE). Concretely, this means that the central bankers again multiply the money supply by buy government bonds banks and large investors on a gigantic scale. This is based on the calculation that the investors who put the money that they get from the ECB in riskier securities such as stocks or corporate bonds. The aim of the economy fresh inflow of capital, which ultimately should lead to real investment and new jobs.
What starts the ECB just now with “quantitative easing”?
ECB chief Draghi justified the purchase of government bonds with his opinion threat of deflation in the euro zone – ie a situation in which it is a permanent fall in the price could come and a protracted economic paralysis. In fact, consumer prices in the euro area have recently dropped by 0.2 percent. For Draghi, this was the final indication with “quantitative easing” (QE) is not to be allowed to wait longer
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From the perspective of the Italian, the ECB is doing nothing more than to fulfill its mandate. Because: Usually it is indeed the job of central bankers to curb inflation, not to promote it, as desirable but is not about a zero inflation, but according to ECB mandate a moderate inflation rate of two percent. And since Draghi will using “QE” now back down
What the ECB plans specifically?
The fact that the ECB at its meeting today launched” would give quantitative easing “(QE), was clear. But what no one knew what to plan the central bankers in detail? The announced measures now go there again clearly beyond expectations. The ECB wants to buy one and a half years, from March month government bonds and other securities in the amount of 60 billion. Overall, the program achieved so that a volume of 1.14 trillion euros incredible – thus increasing the total assets of the ECB is expected to expand to more than three trillion euros. “The European ‘QE’ is bigger than it every American ‘QE’ program was on its own,” said Berenberg Bank.
The details of the program are particularly noteworthy?
It was not clear for a long time, which would buy government bonds the ECB. At issue was, for example, primarily to purchase securities from southern Europe – after the deflation risk is greatest. Instead, the ECB will now proceed but according to their own so-called capital key. That is to say: Large countries with a correspondingly large share of capital of the ECB should also benefit the most from the program. This means, for example, that the central banks will buy more German than Spanish government bonds
One limitation made Draghi here, however. The central bank wants to buy more than one third of the outstanding securities of any single country. It is noteworthy that the program government bonds of different maturities comprises – from two to 30 years. Partly, it was expected that the ECB is limited to shorter-term paper to previously off accordingly out of the program.
The only at first glance concession to the “QE “critic, in Germany seems to be that the euro zone as a whole should be liable only for 20 percent of the bought papers. 80 percent of the risks should lie with the respective national central banks. In recent days, this issue was debated publicly violently. However, many experts believe that it is going to be a technical subtlety that makes virtually no difference.
Why is so controversial “quantitative easing” just in Germany?
Many German economists throw Draghi ago that he only feeds the deflation argument – and in fact with” quantitative easing “(QE) finance the budgets of southern European debt countries wants. They also take a critical view that Draghi’s money printing policy favors the decline of the euro; after the “QE” decision he actually only costs around 1.15 dollars, the lowest rate since 2003. Above all, many fear Draghi critics that the ECB with its anti-deflationary policy overshoot the target, and ultimately a dangerous inflation could cause
What about Greece?
The ECB may initially buy only those government bonds by the major rating agencies” are classified safe “- at the moment for Greek debt securities does not apply to it. However, the central bank makes an exception for countries that are in an official aid program of the troika of the ECB, EU and IMF -. What Greece does
At first glance, this may seem inconsistent , But in fact behind this political calculation: The current Greek aid program runs namely in February, while “QE” starts in March. If the future Greek government (the parliamentary election this Sunday) so wants to benefit from bond purchase program, they have to get back with the Troika some
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If “quantitative easing” help?
This can be the best will not predict – because even recognized experts are some completely contrarian view. “I am convinced that the program to view helps to lighten the mood and to dispel fears of deflation,” said Holger Schmieding, chief economist at Berenberg Bank. Colleague Carsten Brzeski from ING Diba is more cautious: “. Even though I generally positive see the bond purchases – ultimately, the ECB can not force anyone that actually invest lots of money they pumped into the market”
The profiled Governing critic Markus Krall, banking expert at the consulting firm Goetzpartners, however, fears that the central bank at the end of the opposite of the effect, what they really want. His reasoning: If the ECB interest rates continues valley by their money, then eroding the profitability of banks – because it is the banks earn yes to the interest margin at about construction loans. If now but shrank bank earnings, so Krall, “then also decreases its ability to provide the economy with credit”. The Governing course lead it “accidentally, but directly into the deflationary spiral.”
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