- Juergen Stark, ECB chief economist
Mario Draghi, the European Central Bank President, has finally announced that the bank intention to embark on a form of quantitative easing through the purchase of private sector credit, including asset-backed securities and covered bonds, along with a new cut in interest rates. The policy decision came after the annual inflation rate in Euro bloc fell to the lowest level in five years of 0.3%, well below the ECB's 2% target, while the unemployment rates in Italy, Spain, France and Greece remain in the double digits. Although the long-term asset purchase programme and additional rate cut has been opposed by the German Bundesbank chief Jens Weidmann, the important question is how effective the recently announced bank's plans will be, particularly taking into account lack of pro-growth structural reforms that Mario Draghi reiterated were missing from Eurozone governments.
Critics came immediately after the announcement with former ECB chief economist Juergen Stark saying that the central banks is turning into a European "bad bank" and its record-low interest rates will not promote lending in the Euro zone. In contrast, ECB Executive Board member Sabine Lautenschlaeger said that the asset-backed securities market in the Euro bloc is big enough for the ECB's planned ABS buying programme to have an impact on bank lending.
© Dukascopy Bank SA