If only the ECB had paid attention to market monetarism 5 years ago

Ambrose Evans-Pritchard suggests that the ECB might be moving toward easier money:

The doves are seizing control of the European Central Bank. They are already laying the ground work for a blitz of Anglo-Saxon QE, whatever the Germans, Dutch, Austrians, and Finns (?) have to say about such wicked Latin conduct.

Welcome to the next fascinating phase of the EMU opera buffa, opera tragica.

The ECB’s Peter Praet – the board member in charge of setting economic policy debates – has given an astonishing interview to Brian Blackstone at The Wall Street Journal, opening the floodgates for bond purchases.

It is clear that the slide towards deflation and Euroland’s fizzling recovery have caused a revolt at long last. The ECB’s Latin (plus) majority simply refuses to accept Bundesbank orders any more.

“If our mandate is at risk we are going to take all the measures that we think we should take to fulfil that mandate. That’s a very clear signal,” said Mr Praet.

“The balance sheet capacity of the central bank can also be used. This includes outright purchases that any central bank can do. The rules do not exclude that you intervene in the markets outright.”

“For some decisions it’s easier than others [to gain consensus]. One thing is clear: the Governing Council has been able to decide. That’s really the message.”

So there you have it. This had to happen since deflation in southern Europe is causing debt dynamics to go berserk, defeating any of the alleged gains from the rest of EMU policy. Nations have to protect themselves.

“That is a radical change of position for the ECB and a very welcome one in our view,” said Ken Wattret from BNP Paribas.

“This is the most explicit signal yet from an ECB official that balance sheet expansion via asset purchases is on the radar.”

“The patience of the majority of Council members towards the ‘blocking minority’, which has led to a worryingly slow policy response to persistent below-objective inflation to date, has been exhausted. The plunge in inflation in October has been the trigger.”



17 Responses to “If only the ECB had paid attention to market monetarism 5 years ago”

  1. Gravatar of W. Peden W. Peden
    19. November 2013 at 09:29

    “They are already laying the ground work for a blitz of Anglo-Saxon QE, whatever the Germans, Dutch, Austrians, and Finns (?) have to say about such wicked Latin conduct.”

    There are many things wrong with that paragraph and none of them have anything to do with economics.

  2. Gravatar of Edward Edward
    19. November 2013 at 11:04



  3. Gravatar of Petar Petar
    19. November 2013 at 11:37

    OECD seems to be pushing for ECB QE in its latest Outlook, not that they have a say, but nice to see some pressure

  4. Gravatar of Mark A. Sadowski Mark A. Sadowski
    19. November 2013 at 12:18

    OECD Economic Outlook Volume 2013 Issue 2


    Pages 52-53:
    “In the euro area the current accomodative monetary policy stance is appropriate, provided disinflationary pressures do not intensify. With underlying falling to very-low levels and set to be well below the ECB’s medium-term objective for inflation due to extensive slack, the ECB should keep the main refinancing policy rate unchanged until at least until end-2015. At the same time, it should provide adequate liquidity to the market so that the overnight rate remains close to the deposit rate even if some banks repay in advance funds borrowed via the Long-Term Refinancing Operations (LTRO). Institutional changes should also be considered so that additional non-conventional measures are available if disinflationary pressures were to re-emerge, and these challenges could not be addressed by existing monetary tools. Such measures could include purchases, on a non-discriminatory basis, of government and corporate bonds, and programmes to foster bank lending to the non-financial private sector.”

  5. Gravatar of Mark A. Sadowski Mark A. Sadowski
    19. November 2013 at 12:34


    November 13, 2013

    ECB’s Praet: All Options on Table
    By Brian Blackstone

    Central Bank Could Adopt Negative Deposit Rate, Asset Purchases If Needed

    “…”The balance-sheet capacity of the central bank can also be used,” said Mr. Praet, whose views carry added weight as he also heads the ECB’s powerful economics division. “This includes outright purchases that any central bank can do.”…”

    “…The ECB has so far resisted large-scale asset purchases as a means to boost growth.

    The Federal Reserve and Bank of Japan have used this tool, known as quantitative easing, aggressively to spur lending and keep inflation from falling too low, buying large swaths of government and private debt.

    The ECB purchased safe bank and government bonds at the height of the global financial crisis and Europe’s sovereign-debt crisis, but in small amounts compared with other major central banks.

    Such bond purchases are deeply unpopular in Germany, where long-standing fears of inflation inspire doubts about easy-money policies…”

    “…The need for more aggressive stimulus is increasingly being debated by economists and investors.

    Economists at BNP Paribas BNP.FR -1.75% argue the ECB should buy €50 billion ($67 billion) per month of government bonds of euro-zone countries and start doing so “the sooner the better.” Still the French bank places the odds of that happening at under 50-50, “probably by a wide margin,” in part because of likely resistance from the ECB’s conservative wing…”

  6. Gravatar of ssumner ssumner
    19. November 2013 at 14:07

    W. Peden, Mixed metaphors?

    Mark, Yes, that was an interesting interview.

  7. Gravatar of genauer genauer
    19. November 2013 at 14:11

    OMT is based on “strict conditionality” to an existing EMT program, with a blocking veto of Germany.

    No if then else or but.

    AEP has recently talked about “a knife to the throat to Schäuble”, a prior terrorist victim.

    Terrorism is a capital offense. There is no humour about that.

  8. Gravatar of Martin Martin
    19. November 2013 at 14:37


    Did you see the European Stock Markets on the 13th of November (date of the article)?


  9. Gravatar of Geoff Geoff
    19. November 2013 at 17:05

    The ECB did what market monetarists wanted PRIOR to the European recession. It is what caused the recession.

    It’s interesting that every time expansionary monetary policy is considered in connection to a recession, it is never understood as a cause for it. It is only ever considered as some sort of cure.

  10. Gravatar of Benjamin Cole Benjamin Cole
    19. November 2013 at 17:51

    Maybe the world will not be Japanized…

  11. Gravatar of dbeach dbeach
    19. November 2013 at 19:00

    They have things they could and probably should do before going to QE. They still have 25 basis points they could cut, and they could issue an “Evans rule” type of policy statement whereby they express a tolerance for higher inflation, if not until unemployment falls to some level (which would be outside their mandate), at least until the price level gets back to a 2% trend.

  12. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    19. November 2013 at 19:29

    Has anyone ever seen a graph of Eurozone’s NGDP for ten or fifteen years before the introduction of the Euro up to when it was introduced, and then compared to the trend under the BCE regime?

  13. Gravatar of W. Peden W. Peden
    20. November 2013 at 06:04

    Scott Sumner,

    Yes, and mixed cultures: how is QE both Anglo-Saxon and Latin? Is it the product of a mixed-marriage?

  14. Gravatar of James in London James in London
    20. November 2013 at 12:41

    Marcus Nunes at http://thefaintofheart.wordpress.com is your man for that chart. I think he has done it in the past, but I couldn’t find it quickly.

  15. Gravatar of ssumner ssumner
    20. November 2013 at 13:33

    Genauer, Not sure what those acronyms mean . . .

    Martin, Thanks for the info.

    W. Peden, I noticed that too.

  16. Gravatar of genauer genauer
    20. November 2013 at 15:50


    OMT is your “bond buying” in Euro lingo.

    and I missspelled the ESM to EMT

    relevant description of dependencies

    lowering rates, LTRO are clearly within the reach of majority decisions of the Governing Council of the ECB.

    For OMT this is debated heavily.

    The Bundesverfassungsgericht ruling on the constitutionality of OMT is still open

    AEP is your Mssr. Pritchard

  17. Gravatar of ssumner ssumner
    21. November 2013 at 08:10

    Thanks Genauer.

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