jueves, 29 de enero de 2015

jueves, enero 29, 2015
January 25, 2015 7:15 pm

Draghi’s QE is an imperfect compromise for the eurozone

Wolfgang Münchau

By protecting itself from losses, the ECB recognises the possibility of European sovereign default

 
 It was a decent decision given the circumstances, and in one way it exceeded my expectations.

Not that it was particularly large. Mario Draghi’s announcement of approximately €800bn in sovereign asset purchases by the European Central Bank over a 19-month period is what informed observers should have foreseen. If you expected less, then either you did not believe that the ECB president meant it when he promised at the end of last year to increase the ECB’s balance sheet by about €1tn, or you counted wrong. The additional quantitative easing is merely consistent with the goal he had already stated.
 
The positive surprise, however, was the explicit link to the ECB’s inflation target, which carried a faint whiff of Mr Draghi’s 2012 pledge to do “whatever it takes” to save the euro. The phrasing of the actual statement was more circumspect. Each word was carefully chosen, as Mr Draghi said himself.

The goal was not stated in terms of inflation rates or expectations, but in terms of the “path of inflation”. This is about the journey, not the destination. Asset purchases can stop before inflation is back to the official target of just under 2 per cent. This leaves the ECB a maximum degree of discretion on when to end the programme.

The first question therefore is: how will the central bank use that discretion? This is where it becomes tricky. I struggle to come up with a scenario that would extend QE beyond September 2016. If the policy succeeds, it will rightly be stopped. If it fails to lift inflation rates at all, opponents will argue that it is ineffective and should be abandoned. What about the neither-here-nor-there scenario where inflation goes up by a few decimal points (in line with the market expectations implicit in the pricing of various financial assets)?

And what if the oil price were to rise moderately? The anti-inflationary impact of the low oil price is due to diminish towards the end of this year. Headline inflation rates could then jump by about one percentage point. In that case the balance of opinion in the ECB’s governing council might shift away from QE. Those who supported the measure reluctantly this time would say the deflation threat is over.

The second question I have is about wider economic policy. I am not talking about structural reforms. The prevailing wisdom in Brussels and Berlin notwithstanding, these are largely irrelevant to the success of the programme. They matter, but for other reasons.

My main concern is the effect on fiscal policy. German policy makers in particular consider QE inappropriate for the German economy because of its large savings surplus. The German media and the banking lobby portray QE as an assault on the German saver for the benefit of scheming Anglo-Saxon speculators, because it will probably lower interest rates further. Another point is that Germany’s retirement system — where pensions are not invested in the stock market, but in low-yielding government bonds — is not equipped for an environment in which interest rates are at zero for long periods.

Europhobes also feed the conspiracy theory of QE as a eurozone sovereign bond through the back door. Or they portray QE as a device to save southern European banks at the expense of northern European taxpayers. Such fears are irrational, of course. Those who hold them seem to favour permanent austerity: if government debt did not exist, it would not need to be bought by a central bank.

I would therefore expect the German establishment to force the eurozone on to a path of permanent fiscal surpluses. The monetary relaxation by the ECB would be compensated for — or possibly overcompensated for — by further fiscal tightening. If you are a monetarist, you might even welcome this. But then, you would presumably not have bothered with QE in the first place. You would have preferred a stimulatory helicopter drop — print money and send a big cheque to every citizen. If you are a Keynesian, you would be alarmed by any hint of further fiscal tightening and conclude that the overall effect is negative. In any case, neither scenario brings joy.

We are left with a programme to purchase less than 10 per cent of the outstanding stock of European debt. Of those purchases, 92 per cent will formally remain on national balance sheets. This is neither very large nor very risky. By protecting itself from losses in this way, the ECB has in effect officially recognised the existence of a non-trivial possibility of European sovereign default. This may have been a price worth paying to secure the acquiescence of Germany. But it is a price nonetheless. It might have been the best deal on offer. But it is no bazooka.

According to a French proverb, a bad compromise is better than a good lawsuit. The proverb does not tell us whether the compromise is good enough.

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