Thursday, 2 April 2015

ECB’s Lautenschlaeger casts doubts on quantitative easing’s effectiveness

In World Economy News 02/04/2015

European Central Bank Executive Board member Sabine Lautenschlaeger called into question the effectiveness of the ECB’s bond-buying programme, according to an interview in German magazine Wirtschafts Woche.
Under the scheme, known as quantitative easing (QE), which began last month, the ECB aims to print money to purchase 60 billion euros ($64.87 billion) a month of mainly sovereign bonds.
The bank and its constituent national central banks will continue the purchases until September 2016, or beyond if needed, aiming to push inflation back up towards the ECB’s target of just under 2 percent and boost economic growth.
“Given the low interest rates in the euro zone, I have doubts, whether the economic impact of the purchasing programme will reach the desired level,” the magazine on Thursday quoted Lautenschlaeger as saying.
She is a former Bundesbank vice president and member of the hawkish camp on the ECB’s Governing Council.
Buying sovereign bonds will hold down governments’ borrowing costs and keep market interest rates low, encouraging investors to move into riskier assets that will spur growth. The programme has also pushed down the euro, making euro zone exports more competitive.
Lautenschlaeger, however, warned that low interest rates could lead to asset price bubbles.
“With low interest rates there is greater danger of investment behaviour becoming too risky, overheating or price bubbles can easily emerge in other asset classes,” Wirtschafts Woche quoted her in a summary of an interview to be published on Saturday.
She also expressed concern that the low cost of government borrowing would foster complacency among the euro zone’s laggards.
“I definitely see the risk that, that the low financing costs (will) reduce the pressure on governments to consolidate public finances and to tackle the necessary reforms,” she said.
“An expansive monetary policy can only initiate more growth. The decisive impulse must come from economic policy.”

Source: Reuters (Reporting by Maria Sheahan and Paul Carrel; Editing by Susan Fenton)