This morning the governing council of the European Central Bank is meeting and the markets of the whole world are expecting that at the end of the board Mario Draghi announces the green light to quantitative easing.
WHAT IS QE?
This expression (translatable as "quantitative easing") refers to a program for the generalized purchase of private (corporate bonds) and public (government bonds) by the ECB, which in doing so will create new money and inject additional liquidity in the system, in addition to that already guaranteed with the previous monetary policy measures (interest rate cuts to the historic and insurmountable low of 0,05%, Tltro auctions to provide banks with cheap loans to be transmitted to the real economy, purchases of covered bonds and ABS).
WHAT ARE THE GOALS?
Qe is the extreme attempt by the Eurotower to act expansively, increasing the money supply. This should revive inflation (which even fell into negative territory in the last part of 2014, with -0,2% recorded in December), bringing the ECB's official target closer, which points to a lower but close price growth rate at 2%. The central institution also aims to free up the balance sheets of commercial banks and supply the latter with new resources to finance companies and individuals. The parallel depreciation of the euro will also help exporting companies, which will be able to sell at more competitive prices on international markets. Finally, the increase in demand for bonds should lead to a reduction in their cost.
HOW MUCH MONEY WILL COME FROM THE ECB?
Most of the rumors speak of a possible intervention of 500-550 billion euros. The Radiocor agency has written of the possibility of a monthly action of 50 billion for at least one year, which would bring the total to 600 billion. According to the Wall Street Journal, however, the operation will continue until the end of 2016, bringing the total up to 1.100 billion.
WHAT ARE THE CONTROVERSIBLE POINTS?
Not everyone in the Governing Council agrees with the need for QE. Leading the opposition is, as always, the German Jens Weidman, governor of the Bundesbank. The main controversy is whether or not to buy government bonds and it is probable that in any case the bonds of countries such as Greece and Cyprus will be excluded. Other doubts concern the total amount and the pace of the operation.
