Fine Gael MEP Brian Hayes will today call for the European Central Bank to redesign its quantitative easing (QE) programme before any expansion of it is considered, arguing that the current scheme has not had the “desired” effect.
This follows recent comments by European Central Bank president Mario Draghi that QE will be re-examined in December. The ECB began buying government bonds in March with Mr Draghi pledging an asset-purchase programme worth about €1.1 trillion out to September 2016.
“President Draghi has kept an open-door policy to expanding QE even further than the €1.1 trillion originally planned,” Mr Hayes said.
“While expanding QE might be helpful, I do not believe this should be considered until QE is redesigned and we see inflation moving in the right direction.”
Inflation falling
He added: “QE has so far not had its desired impact. Inflation should be increasing on the back of QE yet in recent months it has been steadily falling and now stands at -0.10 per cent for the whole euro zone.”
QE involves a central bank creating new money electronically and using it to buy assets, normally government bonds. Buying these bonds from investors or banks gives these parties more cash to lend out or invest elsewhere.
Mr Hayes said the QE programme needs to be completely redesigned with more risk- sharing between central banks.
“At the moment, only 20 per cent of asset purchases are subject to risk-sharing through the ECB, the other 80 per cent fall on to the shoulders of national central banks. This makes it more difficult for some central banks to inject money into the economy knowing that they bear responsibility for any potential default,” he said.
“Secondly, there needs to be a much greater level of public and private investment through public-private partnerships. For QE to work properly it needs to be mixed with adequate levels of stimulus.”
Investment plan
Mr Hayes added: “[European Commission president] Jean- Claude Juncker’s €315 billion EU investment plan will have an important impact but member states themselves need to take ownership and get investment going again in their economies. Germany is a prime example of a country that needs a radical increase in investment.”
Mr Hayes also believes there needs to be a quicker implementation of the EU’s new capital markets union plan.
“The idea behind this plan is to open up new forms of lending to businesses and households, rather than relying on traditional bank lending. QE will only work when households and businesses are borrowing sufficiently.
“At the moment, households and companies across the euro zone are busy trying to pay off debts and are not in a strong position to take out new loans. The capital markets union plan is expected to be completed by mid-2019 but we need a quicker time frame for the essential components of the plan.”
