So what exactly can the ECB do, anyway?

My latest post at Forbes considers what the ECB's alternatives are for easing in the Eurozone:

The ECB is not going to do QE, or indeed any other form of monetary easing at the moment. But they are talking about it. And for the moment, it seems, talk is enough. The Euro is up and bond yields are down, even for Greece (which isbravely attempting to return to the capital markets this week). European stock markets are worrying about the Ukraine crisis. It’s back to business as usual.
But as Andrew Clare of Cass Business School caustically remarks, “markets won’t be satisfied forever with hot air”. Unless Euro area inflation somehow reverses its current downward trend – which seems unlikely, since the world is on a general disinflationary trend at the moment and the Euro area is hardly a stellar performer  – the ECB will eventually be forced to do more than talk.

Read on here.

UPDATE: The ratings agency Fitch is rather more positive about the ECB buying SME loan securitisations than I am.


  1. A really neat idea (sorry, forgot who it's from) is simply to buy tons of US Treasuries (or JGBs etc): it's not monetary financing of a eurozone members state, helps directly with the exchange rate, and indirectly those euros will find their way back home and relax conditions domestically.

    1. It's from Jeffery Frankel:

      It's a neat idea, but I wonder how the US would regard it. They could view it as deliberate currency manipulation. That wouldn't go down well (think Mitt Romney's attitude to China).

    2. If they think it's "currrency manipulation", they can neutralise any inflows by buying back the very exact same amount of eurozone government bonds (the Fed is not bound by Euro treaties!) which should work similarly well, and is also balanced re counterparty risk (a common objection to the Fed venturing overseas). What is there not to like?

  2. Germany has its' own development bank which mysteriously fails to register on the national accounts and it appears to work. I would have thought that an EZ wide version of this would be a step forward. As to Germany hitting recession this is a nailed on certainty, it only narrowly avoided recession just before Merkel was re-elected in dubious circumstances.

    Recessions follow surplus as night follows day. We can only guess what toxicity resides in the Landesbanks, Germanys' banks are as insolvent as the rest I strongly suspect. bill40

  3. True. China has a closed capital account. That's not the case in the Eurozone. Although they would have to think carefully about which bonds they bought. Very tempting to focus on AAA-rated bonds, but that could have quite a bad effect on the European bond markets. And buying periphery bonds might not go down too well with Germany. Though as you say, the Fed is not bound by EU treaties - it can buy whatever it likes.

    1. I don't think there would be material German opposition -- indeed I would expect positive support -- to the Fed buying any amount of euro peripherals, even if they don't buy any core: no German or euro taxpayer monies are involved! One could argue (with some reason) about relative fairness or indirect effects, but hardly anybody who matters in public opinion in the Eurozone thinks like that.

      I can more easily imagine domestic opposition in the US ("the Fed shouldn't make high risk bets on funny countries"), so I guess in practice they could either buy everything with some more or less neutral weighting, or indeed only core bonds (AAA itself is probably impractical due to the small float available). Buying only core bonds would not be ideal, but then it should flow in the end as some existing holders will likely move up the risk ladder in response (and so on transitively).

    2. Yes, there might be opposition in the US. Someone in the US would be bound to point out that the Fed was doing QE on the ECB's behalf - which would be true, actually.

    3. Interesting article! Found this very interesting: Tesco are eyeing a slice of the lucrative takeaway trade in London. Read it here

    4. The above from Ms Farre is spam. She plonked some of her rubbish on my blog today.

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