2015年-CEPS欧洲政策研究中心_Time_for_the_ECB_to_bite_the_bullet_3页_117kb

ECB Should Implement Quantitative Easing to Combat Deflation

Core Content

The document, authored by Stefano Micossi, argues that the European Central Bank (ECB) must adopt quantitative easing (QE) as a necessary measure to achieve its inflation target of "below but close to 2 per cent." The author emphasizes that conventional monetary tools have failed to stimulate inflation and private demand in the eurozone, and that the ECB needs to take bold action to restore credibility with financial markets and the public.

Main Reasons for QE

• Negative inflation: The eurozone has experienced negative inflation in December 2014 and has been below 1% since October 2013, with no clear sign of recovery.
• Limited effectiveness of other tools: Previous measures, including ultra-cheap refinancing of banks, have not worked due to weak private sector loan demand.
• Falling inflation expectations: Inflation expectations in the two-to-five-year horizon are approaching zero, indicating a loss of confidence in the ECB's ability to meet its target.
• Legal support: Advocate General Pedro Cruz Villalón of the Court of Justice of the European Union (CJEU) has affirmed the ECB's broad discretion in monetary policy, including bond purchases under the OMT programme.

Key Arguments for QE

• Exchange rate impact: QE will lower the euro's exchange rate, which has been artificially high since the financial crisis. This will make imported goods more expensive and boost exports, potentially increasing manufacturing activity and employment.
• Stimulate investment: Ultra-low long-term interest rates will encourage private investment, especially in housing, which is already happening in southern eurozone countries.
• Deleveraging and spending: As long-term interest rates fall below GDP growth, private sector deleveraging will accelerate, leading to reduced savings and increased consumption.
• Market convergence: QE will reduce interest-rate spreads between eurozone countries, helping to restore the effectiveness of monetary policy transmission and reduce market fragmentation.

Concerns and Considerations

• Germany's special case: Germany may benefit less from QE due to its already low interest rates, which suppress private demand. However, without QE, Germany could suffer more from capital inflows and the associated deflationary pressures.
• Credibility of QE: To be effective, QE must involve large-scale and long-term purchases. Capping the programme at an arbitrary level, such as €500 billion, would undermine its credibility.
• Sovereign debt purchases: Given the small size of private securities markets, the ECB will likely have to purchase sovereign debt. This could lead to accusations of favoring certain member states, unless purchases are distributed fairly (e.g., based on GDP share).
• Moral hazard risk: QE could weaken budgetary discipline in highly indebted countries if it leads to lower interest rates on their sovereign debt. The ECB can mitigate this by excluding problematic sovereigns from its purchases.

Risk Sharing and Fiscal Implications

• Risk of default: The ECB must be cautious about the risks of sovereign default or debt restructuring, rather than general market volatility.
• Potential losses: The ECB is expected to initially gain from falling interest rates, which could serve as a buffer against losses.
• Fiscal resource transfer: The document raises concerns about the ECB's balance sheet being used to transfer fiscal resources between member states. This is seen as a potential threat to the separation of monetary and fiscal policy.
• National central banks' role: Some suggest that national central banks could absorb initial losses, which is feasible without undermining the ECB's unitary approach.

Conclusion

Micossi concludes that QE is the only viable option for the ECB to restore inflation and economic activity in the eurozone. While there are risks and challenges, particularly in terms of moral hazard and fiscal implications, the ECB has the legal and operational flexibility to implement QE effectively. The key is to ensure that the programme is credible, well-structured, and avoids undermining the principles of monetary policy independence and fiscal responsibility.