The drumbeat of comments is getting louder. And the message seems to be the same: Europe is gearing up for U.S.-style quantitative easing (QE) measures.
Until now, Europe’s central bank has purchased bonds of sovereign debt-crisis-stricken countries in its attempts to prop up the eurozone. It has, however, not engaged in freestyle across-the-board asset buying (which releases funds into the financial system) to juice the eurozone’s economy, unlike the Federal Reserve, which has engaged in three rounds of QE.
Now, it looks increasingly likely that the European Central Bank will follow suit. Comments from ECB officials suggest they are prepping financial markets for such action.
The latest comment comes from ECB Vice President Vitor Constancio, who admitted the bank had discussed QE, adding that no technical planning had taken place. “All those instruments are on the table … but no decisions, we did what we did and that’s it,” he said, according to a Wall Street Journal report. Note the fact that the ECB actually discussed QE.
Earlier this month, the ECB cut its benchmark rate to a record low of 0.25% to fend off the threat of deflation after October’s inflation figure fell to a four-year low of 0.7% for the 17-member currency union.
In another interesting development, Joerg Asmussen, an ECB executive board member, acknowledged that more policy action would be forthcoming if inflation did not climb up to the ECB’s target of around 2%.
Both statements confirm what Peter Praet, the bank’s chief economist, said in the wake of the ECB’s rate cut: all options, including asset purchases, are on the table. He was the first ECB official to say that. Now, more bank officials are joining the chorus.
Even the Organization of Economic Cooperation and Development (OECD) thinks stimulus measures are a good idea. The OECD’s chief economist Pier Carlo Padoan urged the ECB to consider QE given the eurozone’s weak growth prospects, according to a Globe and Mail report.
Central bank officials, in general, are cagey people, extremely aware of every word they say. The fact that ECB officials are talking about unconventional stimulus measures indicate these measures are actually being discussed inside the bank. And something being discussed inside the bank wouldn’t spill into public domain unless they wanted such matters to spill out. In other words, they want us to know they are thinking about QE.
So, given that all the economic signs suggest the eurozone continues to perform sluggishly — third quarter growth came in at a lowly 0.1%, inflation is falling and unemployment rate is at a record high — it’s safe to assume the chances of a QE for Europe are getting higher and higher.