Benoit Coeure, who sits on the six-member executive board of the European Central Bank, just stoked expectations for the eurozone’s likely looming quantitative easing (QE) programme even higher.
When asked about what a QE programme might look like in an interview for the Irish Times, Coeure said: “The only thing I can say is that for it to be efficient it would have to be big.”
Coeure went on:
So we have to make the case in a convincing way that we have the resolve and the instrument to move the European economy out of the low growth, low inflation situation before it becomes a trap… And then all institutions have to contribute according to their mandate. The ECB has a mandate which has to do with inflation. We certainly have to act and show in a convincing way that we have instruments to act to deliver on our mandate.
One of the things investors and analysts have stressed in recent weeks is that there’s a risk that even if the ECB does agree to QE, a hashed-together compromise will make it too small and ineffective.
Here’s Jonathan Loynes at Capital Economics expressing that worry:
Overall, then, while the ECB is belatedly set to cross the Rubicon to full-blown quantitative easing, it will have to be uncharacteristically bold if it is to meet or surpass expectations and have a material impact on the euro-zone’s economic outlook. We are not particularly hopeful.
The ECB has been the most sluggish of the major central banks in its stimulus efforts, and most people are expecting a similar disappointment on 22 January, the ECB’s next meeting. Reports have suggested a €500 billion QE programme, in which the ECB would buy up government debt. That wouldn’t be enough to bring the central bank to its own balance sheet target, which would require a programme nearly twice that size.
Markets already seem to have “priced in” QE, so they’re expecting at least some extra stimulus. It’s impossible to say exactly how much is expected by investors in aggregate, but if the programme falls short of it, there’s likely to be a negative market reaction. Hopefully Coeure’s comments mean something big really is coming.