ECB draws boundaries of future measures
Print Edition
TOP European Central Bank officials drew the boundaries of future action yesterday, saying the bank had no plan to transfer “helicopter” money directly to Europeans but remained willing to take smaller steps to counter global slowdown.
“We are not considering anything of that sort. So it’s not on the table in any shape or form,” ECB Vice President Vitor Constancio told lawmakers in the European Parliament, commenting on the concept of making direct payments to citizens, cited by some as a last resort.
His remarks, echoing those of the central bank’s chief economist, Peter Praet, establish an effective outer limit on ECB action although a range of lesser measures, such as extending ECB buying of government bonds, remain open.
Since the Chinese economy, once the engine of global growth, began to slow, the prospects are fading for big exporting nations such as Germany, the bedrock of the eurozone.
In an attempt to revive the 19-member currency bloc’s fortunes, the ECB has rolled out ever more ambitious money-printing schemes to buy bonds and other assets and it will soon start to even pay banks to borrow its money so long as they lend more.
Despite taking this action, however, many in Frankfurt remain concerned, not least because of the bleak outlook for the global economy.
Echoing his US peers’ worries about an uncertain future, Mario Draghi wrote yesterday in the ECB’s annual report that the year ahead would be a challenging one.
“We face uncertainty about the outlook for the global economy. We face continued dis-inflationary forces. And we face questions about the direction of Europe and its resilience to new shocks,” he wrote.
“No surrender”
Draghi’s downbeat tone was similar to that of policy-makers at the Federal Reserve, minutes of whose mid-March policy meeting, released on Wednesday, said: “Participants generally saw global economic and financial developments as continuing to pose risks.”
Draghi insisted that “the ECB does not surrender to excessively low inflation,” a message that suggests willingness to act.
Such action could involve a revamp of the ECB’s bond-buying scheme, for instance, ECB chief economist Praet said yesterday.
But the ECB’s freedom of maneuver is limited by the necessity to get the support of 19 sometimes-reluctant central bank chiefs from the bloc’s member states.
A public record of the ECB Governing Council’s meeting on March 9 and 10, which extended measures to help the economy and cut rates, showed that while ECB governors were broadly in agreement, some had reservations.
“While, overall, members widely agreed on the need for comprehensive policy action, different views were expressed with regard to the individual components of the proposed package,” officials wrote in their account of the gathering.
Citing the example of the charge imposed on banks for parking money with the ECB, the minutes said: “Concerns were raised about possible undesirable side effects that could arise from moving further into negative territory. A further cut ... could unduly increase the pressure on banks’ profitability.”
This deposit rate was trimmed further below zero in March but the debate illustrates how difficult it would be to reduce again.
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