After a year, Draghi remodeling Quantitative easing here is what worked and what did not – The Republic

MILAN – A year ago Mario Draghi launched the Quantitative easing , the securities purchase program by 60 billion to month that also included the sovereign bonds, and would have to bring inflation back towards the target of close to 2%. In late February, the ECB’s balance sheet had entered almost 600 billion of government securities. In the belly of the European Central Bank titles accounting for 25% of eurozone GDP, while the Fed has gone up to 27% of the US economy: now overtaking the European program of the American one it is coming. Twelve months after the launch of Qe, the market still asks for more to Italian governor, in the light of the slowdown in the global recovery, the Chinese market crisis and above all the new signs of weakness on the price front. Now, analysts expect an extension of the Qe than March 2017 (by at least another 3-6 months), the rate cut on deposits at the ECB from 0.3 to at least 0.4% and increased purchases at least 70 billion per month.
waiting to see if Draghi will decide to accommodate these expectations, reflection focuses on what has worked or not during this year of Qe. In a report that Fadi Hassan, professor of economics at Trinity College Dublin, has realized for Unicredit, it is clarified that “the program has been successful in countering a further worsening of inflation, but not to reach the goal” of price growth . Rod that the mandate given to the ECB shall make a dynamic close to 2% over the medium term; while Eurostat data in hand, the inflation was negative in February. What worries, returning to the report, it is that “hardly a further expansion of the program will provide sufficient stimulus to inflation.” The overall assessment is not limited to this note negative: “By improving the conditions of access to credit for businesses and households, and reducing borrowing costs for governments, the Q and creates an economic environment that makes the most incisive fiscal policies”, he writes the economist. That’s why, as he likes to repeat the same Draghi, the lever of monetary policy can not be separated from that of fiscal policies, to ensure that the economic recovery will be strengthened and with it the dynamics of prices.
an additional headache to the governor is the fact that inflation expectations are particularly weak. Draghi said that the indicator most watched in Frankfurt rooms is the swap rate 5y5y, ie the market bet on what will be the average inflation rate in five years, and for the next five. “The rate has fallen below 2% since the second half of 2014″, it reads the report of Unicredit, “and this was one of the reasons that led to the launching of the Qe”. Until last summer they had seen signs of recovery, but then the trend in expectations has been erratic, alternating between thrusts markdowns (fears about the Chinese financial crisis and falling oil prices) and increases (expectations of a strong expansion QE in December 2015). In the end they prevailed negative weights and has arrived at a historic low of 1.4%. “Therefore we expect that the ECB will take an expansive location with its next meeting”. Because inflation expectations are so important? Most are low, as they can “drive down investment and have a negative effect on wage trends by reducing aggregate demand,” in addition to “raise the real interest rate on debts, with negative effects on indebted persons” (whether public or private): additional ballast to the recovery.
said as the Draghi Bazooka could not remain significant positive aspects. The study Hassan tracks them in “the indebtedness of governments significant costs down, with considerable savings on interest charges”. Budget constraints, however, have struggled to lighten and “these savings have been used mainly for fiscal consolidation, not contributing to the stimulation of economic recovery.” On this front, however, Italy has been a major beneficiary, with savings on costs for the estimated interest in the order of 6.5 billion during 2015 compared to last year (roughly 0.9% of the costs primary, against 0.5% in Germany and 0.3% in France).

Why deflation scares the ECB and the in addition to the economy
public budgets, including that of the family has got to benefit from. Needless to say, the spreads have lowered the minimum mortgage rates and the cost of funding. The study adds to these considerations the improvement of the conditions of access to credit surveyed by the ECB Bank Lending Survey. Still Peninsula took the opportunity: “The access to credit conditions have eased further in Italy, and have remained stable in Germany and Spain and we are restricted in France”, says the expert. Even in this case, however, the real economy effects have proved to lights and shadows. Eurozone consumption was above the pre-crisis levels, but it was a trend already in place before the announcement of the Dragons and has simply consolidated. Thumbs down, however, on investment that are even lower than the 15% to pre-recession levels.

topics:

quantitative easing

bce

deflation

inflation

Starring:

mario dragons