The Guardian view on QE in the eurozone: better late than never
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Version 0 of 1. Two and a half years have passed since Mario Draghi promised to do “what it takes” to save the euro. But it took until Thursday for him to get around to doing what his counterparts in Washington, London and Tokyo did long ago – and set the printing presses whirring in the battle against economic depression. The president of the European Central Bank is, even though such a technocrat would deny it, an accomplished politician. It’s just as well: he has to be. At his press conference, the upbeat Italian set out a large, if heavily rule-bound, bond-buying scheme which represented the best that he could wring out of the eurozone’s sclerotic architecture of economic governance. The headline commitment, to purchase €60bn in assets with made-up money each month, cheered the markets because it was €10bn more than the €50bn that had been artfully trailed. The successful spin could unravel – especially if it emerges that German resistance to starting the scheme at this moment was fierce. “Additional eligibility criteria” for countries in receipt of IMF help confirmed the lack of any spirit of solidarity towards Greece, days ahead of that country’s plebiscite on years of Euro-austerity. Arcane, and ultimately second order, negotiations about how losses for purely hypothetical defaults by other states might be shared across the continent went to the wire. But from this haggling Mr Draghi rescued a tolerable if unsatisfactory fudge, and on two other details that could have turned devilish, he notched up victories. He announced the unanimous recognition by his board, which includes two German members, that the sort of quantitative easing he is embarking on is a legitimate tool of the trade. A settled ECB view that the Draghi plan rests on proper authority is useful to have in the face of ongoing legal arguments, which resonate in Berlin, about the bank going beyond its powers. His second win was to avoid getting ensnared in an arbitrary time limit, announcing that bond buying would continue “until we see a sustained adjustment in the path of inflation”, which – when translated from central bank jargon – means for as long as it takes. But as long as it takes to do what? The immediate, and the only explicit, objective is to restore consumer prices, which are now actually sinking, to annual growth of something approaching 2%. This matters because of the desperate need to shrug off the wider European stagnation, which deflation both symbolises and threatens to intensify. Unchecked it will swell the real value of debts, weighing down mortgaged families and the businesses that the eurozone desperately needs to invest. Bond buying will not on its own guarantee any recovery in economic spirits, but Europe has reached a pass where a continuing failure to act would have virtually guaranteed that the mood would not lift. There are myriad theories about exactly how QE works – from inspiring workers to demand a pay rise, to enticing financiers to lend to companies instead of just governments – most of them dubious. Many of the Fed’s freshly minted QE dollars have ended up swelling New York hedge funds, while the wand waved by the Bank of England has worked more magic in the South Kensington property market than anywhere else. But however perverse it may be to reward the speculating classes who had such a hand in the original crisis, it is preferable to sitting idly by while purchasing power shrivels away. Until , the record of the ECB was worse than passivity – it has spent most of the past two years contracting its balance sheet, and with it the real value of the money in circulation. And as the US and the UK economies have falteringly chugged back to life, the eurozone has remain utterly stalled. A powerful case can be made that it would not only be fairer but more expansionary too if instead of embracing a conventional QE programme, the ECB had been more creative – and lent straight to expanding employers, directly bank-rolled investment in public infrastructure, or simply credited cash into regular citizens’ accounts. Europe, however, is not in imaginative mood. It currently needs all the energy it can muster just to survive. At least it showed on Thursday that it is not in the grip of a death wish. |