Eurozone bank to keep on printing money

The European Central Bank (ECB) will “implement in full” its €1.1 trillion stimulus programme, bank chief Mario Draghi i has said.

Delivering a lecture on Thursday (14 May) at the International Monetary Fund in Washington, Draghi told the audience that a prolonged period of recession, low economic growth, and political uncertainty in the eurozone had left businesses and households “very hesitant to take on economic risk” and that “quite some time is needed before we can declare success.”

“Our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis,” he noted.

“While we have already seen a substantial effect of our measures on asset prices and economic confidence, what ultimately matters is that we see an equivalent effect on investment, consumption, and inflation," he added.

The Frankfurt-based bank on Thursday (5 March) announced it would purchase €60 billion of bonds per month as part of an unprecedented quantitative easing programme (QE) set to run until September 2016.

The decision to pump a total of €1.14 trillion into the eurozone economy, together with a sharp fall in the price of oil, has fuelled a distinct rise in economic confidence across the eurozone.

The eurozone economy grew by 0.4 percent in the first three months of 2015 on the back of stronger than expected growth in France and Italy, while the European Commission, which has raised its growth forecast for the year to 1.5 percent, described the “brightest spring in several years” for the European economy.

The currency area also edged out of a four-month period of falling prices in April, although prices remain well below the ECB’s 2 percent target.

The bank plans to continue buying around €60 billion worth of bonds per month, including €50 billion under its Public Sector Purchase Programme (PSPP).

However, the policy is not without its critics.

Extremely low interest rates, caused by the flood of new money into the markets, also means that savers and pension funds get tiny returns, a point conceded by Draghi as a potential concern.

“For pensioners, and for those saving ahead of retirement, low interest rates may not be an inducement to bring consumption forward. They may on the contrary become an inducement to save more, to compensate for a slower rate of accumulation of pension assets.”

The IMF, a supporter of the stimulus plan, has also warned that too much cheap money is fuelling more risky behaviour from investors seeking to make higher returns.

Meanwhile, in an interview with German daily Handelsblatt on Thursday, Bundesbank president Jens Weidmann again criticised the extension of the ECB’s emergency lending programme to Greek banks.

“I don’t think it’s OK that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself,” he said.