By Matthew Lynn
DANIEL ROLAND/AFP/Getty Images
LONDON (MarketWatch) — Interest rates taken even deeper into negative territory. A fresh round of QE. Extending the length of the existing program. Buying up even more unconventional assets.
Short of literally flying across Naples or Lisbon in a helicopter and chucking out freshly minted euros, it is hard to know what else European Central Bank President Mario Draghi can do to revive the eurozone economy.
Ahead of Thursday’s meeting of the European Central Bank, the markets were looking for yet more extreme policies from the ECB, and speculating feverishly on new gimmicks it might launch. As it happened, the bank didn’t expand its stimulus program, but Draghi did say that quantitative easing would continue for a while.
Next time, Draghi should just ignore the pleas to do more — and try something genuinely radical instead. He should admit the ECB has done all it can to revive the eurozone economy and hand the job over to the politicians.
In the markets’ favorite term, that really would be a Big Bazooka.
Is It Time for the ECB to Invest in Equities?
The European Central Bank is running out of bonds to buy, but has yet to start buying stocks. WSJ’s Tom Fairless joins Lunch Break with Tanya Rivero to discuss the pros and cons of an ECB investment in equities. Photo: Reuters
When the ECB met Thursday, it is widely expected to ease policy once again. According to a Bloomberg poll, more than 80% of economists expected the ECB to extend its existing program of quantitative easing beyond the existing March 2017 deadline. A similar number expected it to tweak the rules of the type of assets it can buy, and in what quantities.
None of that was delivered, although Draghi didn’t rule anything out.
In fact, an extension of QE has already been taken for granted. The real interest is in what other measures the ECB can take to try to pump some life into the economy.
It could start experimenting with ways of handing money directly to small business, or pumping it into the housing market. It could impose steeper negative rates. It could start buying equities as the Japanese and Swiss central banks have done. It could even start steps towards abolishing cash — some of the wilder conspiracy theorists already detect signs of that in the ditching of the 500-euro note.
Heck, it could start ordering companies to start investing at gunpoint, or locking people up if they didn’t hammer their credit card at the shopping mall every weekend. It has tried just about everything else.
But hang on. What exactly is the point? Is there anyone out there who seriously believes it is going to make any difference?
It is now more than a year now since the ECB launched its program of QE. The bank started pumping money into the economy in March 2015, which is now 18 months ago. It has stepped up its efforts since then, increasing the size and scope of its purchases, making it one of the largest ever undertaken. In total, it has taken 1 trillion euros of assets onto its balance sheet. And the impact? Almost nothing.
Inflation across the eurozone is still running at only 0.2%, a whisker into positive territory and still well below the bank’s target. In Spain, prices are actually falling by 0.3% a year — not bad for a policy that specifically aims to get prices moving up again.
Only this week we learned that growth across the zone was even lower than previously thought, at just 0.3% for the latest quarter. Investment spending had completely stalled, despite the fact that QE was meant to get companies spending again with the new money that banks would suddenly be lending to them. France and Italy, two of the zone’s three largest economies, have slipped back to zero growth despite a generally growing global economy.