ECB will use ‘unconventional tools’ to spur eurozone growth

Mario Draghi at an ECB press conference in June 2014. [ECB/Flickr]

The European Central Bank stands ready to use additional unconventional tools if needed to spur inflation and growth in the eurozone, ECB President Mario Draghi said on Monday (22 September).

Speaking to the economic and monetary affairs committee of the European parliament, Draghi also said he expects more demand from banks for its new ultra-long loan programme, known as TLTROs, when the funding is offered again in December.

Lower than expected take-up of the initial tranche of loans last week has fuelled expectations the ECB may eventually take more radical stimulus measures, such as printing money to buy securities. Such quantitative easing, or QE, would face strong resistance in Germany.

Draghi said the eurozone central bank’s governing council “remains fully determined to counter risks to the medium-term outlook for inflation”.

“Therefore, we stand ready to use additional unconventional instruments within our mandate, and alter the size and/or the composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation,” Draghi said.

He said the €82.6 billion taken by 255 banks last Thursday was “within the range of take-up values we had expected” and noted that banks will have another opportunity to use up their TLTRO initial allowance in December.

“By design, the September and December operations should be assessed in combination,” Draghi said, adding that news of the TLTRO programme had already had a “positive impact on financial market sentiment”.

A Reuters poll on Monday predicted that the second tranche of the TLTROs in December will attract better demand than last week’s sale but is still likely to leave a third of the total €400 billion on offer untapped.

QE, involving buying large amounts of private and sovereign debt, has been used by other major central banks like the US Federal Reserve and the Bank of Japan to get their economies going again.

And while the Fed has now started to withdraw its stimulus, the euro zone is struggling to recover from its own debt crisis.

As the eurozone economy ground to a hold in the second quarter and markets’ belief in the ECB’s ability to keep prices stable wilted, Draghi shifted gear and called for a new policy mix of government reforms and fiscal stimulus to accompany the ECB’s efforts.

In a landmark speech in Jackson Hole, Wyoming, in August, Draghi said it would be “helpful for the overall stance of policy” if fiscal measures could play a greater role, “and I believe there is scope for this”.

His plea fell on deaf ears in Germany, where Finance Minister Wolfgang Schäuble rebuffed calls also from struggling eurozone countries to boost spending to strengthen domestic demand, saying structural reforms were key to return to growth.

France’s Manuel Valls used his first visit to Berlin as prime minister on Monday to try to convince Germany his government was serious about making its economy more competitive.

France has won two extra years until 2015 to bring its deficit down to the EU’s 3% of gross domestic product target.

Draghi renewed his plea for governments to undertake more structural reforms to support the eurozone economy.

“Courageous structural reforms and improvements in the competitiveness of the corporate sector are key to improving the business environment,” he said.

“This would foster the urgently needed investment and create greater demand for credit. Structural reforms thus crucially complement the ECB’s accommodative monetary policy stance and further empower the effective transmission of monetary policy.”


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