The quantitative easing in the euro-zone is a done deal. On Thursday, the European Central Bank (ECB) Council adopted by a large majority a purchase program, which includes in addition to the previously announced private assets and government bonds of the monetary union. ECB President Mario Draghi said after the meeting of the Council to the press in Frankfurt, the current inflation environment’ve requires a dedicated response from the Federal Reserve. The dynamics in the euro area was below expectations, he continued, and although the fall in oil prices were responsible for a large part of the discount in Europe, the risk of second-round effects has increased. In addition, market expectations have fallen on future inflation in the euro zone over the entire maturity spectrum, which increases the risk of a decoupling of expectations from the inflation target of the central bank.
Previous steps insufficiently
The already measures taken, the President admitted frankly had not brought the desired success. While they had driven prices in financial markets, whether by them in the control, however, is no significant buoyancy assumed. The monetary stimuli were inadequate, Draghi said with conviction, so an additional easing of monetary policy is now required and the existing purchase program (covered bonds and collateralized debt obligations) will extended to government bonds.
Specifically, the central bank intends to acquire a month from next March of private and public assets worth € 60 billion, with the main emphasis should be on the government bonds. The program should be continued until a long-term stabilization of inflation trends occur, bringing inflation in the euro-zone back to the vicinity of the ECB’s inflation target of 2%. This should be according to the Governing Council earliest in September 2016 the case, making the purchase program would reach a volume of € 1140 billion.
The ECB is on the secondary market government securities (securities of central governments, certain European agencies and national and supranational institutions) due to their capital key buying (see. Figure). All purchase decisions by the Governing Council like the execution of the purchases is done but decentralized manner through the national central banks. For the papers of program countries special criteria apply their titles but at least not purchased during a review of the reform programs by the Troika, which is why Greece is not initially benefit of purchases. Be purchased securities with a maturity period of 2 to 30 years. In order not to affect market liquidity too much, the ECB has certain limits: So they will buy a total of not more than 33% of the securities of a single issuer and per emission acquire more than 25% of the title
For the controversial Community liability in case of loss, a compromise was found: For 20% of the papers the euro-area member states are jointly liable for the remaining 80%, individual states must stand up straight. Draghi said that some council members would interfere in the Community liability, and since the program’s effectiveness does not depend on her, was now chosen form of predominantly national liability a good way.
To the attractiveness of last year announced conditional long-term funds (TLTRO) not to interfere too much, the Governing Council has also eased the conditions on Thursday. New to the banks for the Fed money they receive with increased lending, only pay the prevailing prime rate at the closing of the transaction. Up to now, a premium of 10 basis points was provided.