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ECB waits on eurozone stimulus

December 4, 2014

The European Central Bank said it was considering a major purchase of government bonds to stimulate the eurozone economy, but that no decision would be made until early next year.

https://p.dw.com/p/1DzUN
Mario Draghi
Image: Getty Images

The European Central Bank (ECB) indicated Thursday it was readying itself to implement new stimulus measures to revive the flagging eurozone economy, saying it had "intensified its preparations" for combating deflation.

This could be a clear hint the bank is considering going ahead with large-scale purchases of government bonds, a practice known as quantitative easing, which has been used by the US Federal Reserve, the Bank of England and the Bank of Japan.

But ECB President Mario Draghi said the bank would wait until it had assessed the impact of its current monetary policy and the effect falling oil prices have had on the bloc's growth before taking any further action.

The ECB's decision to slash its growth and inflation forecasts for the next three years suggested there was more room for fresh monetary easing.

Draghi said the bank had "stepped up" preparations to boost growth and get inflation to healthy levels - widely regarded as just below 2 percent.

Rock bottom inflation rates can put pressure on the ECB to pursue more drastic action, and analysts said Draghi could hardly have been clearer about his intention to do so - probably by next January.

The ECB's governing council is scheduled to meet next on Jan. 22 to decide on what action to take.

But Germany, the eurozone's biggest economy, remains staunchly opposed to this policy, afraid the measures would fuel inflation and discourage governments from reforming their economies in the future.

However, Draghi said there was no need for all countries in the 18-member bloc to agree.

"Do we need to have unanimity to proceed on QE or can we have a majority? I think we don't need unanimity," he said.

Draghi's decision to wait could also be a way to design a stimulus program that takes into account the holdouts' reservations. Or it could be a ploy to put pressure on the ECB's critics, since the bank could more easily make a case for larger, more drastic measures, experts said.

Gloomy outlook

The ECB also cut the eurozone's growth forecast to 0.8 percent this year and decided to keep its main interest rate unchanged, which is at a record low of 0.05 percent.

Furthermore, inflation is expected to slow to 0.5 percent this year.

Although the euro rebounded from its two-year low, European and US stocks slumped in response to Draghi's remarks Thursday.

el/cjc (dpa, AFP, AP, Reuters)