Mario Draghi is preparing the world for quantitative easing (QE) in Europe.
In an interview with German-language newspaper Handelsblatt, European Central Bank president Mario Draghi said the ECB is making “technical” preparations for a change in its asset purchase program.
Draghi was asked about the ECB’s goal to expand the size of its balance sheet to €3 trillion from €2 trillion and says the ECB is, “making technical preparations to alter the size, pace and composition of our measures in early 2015, should it become necessary to further address risks of a too prolonged period of low inflation.”
With QE, a central bank purchases assets like bonds in order to boost liquidity and lower interest rates in an effort to stimulate the economy. (Still not sure what QE is? Business Insider’s Mike Bird has the definitive explainer.)
Societe Generale strategist Sebastian Galy wrote on Friday that these comments are a promise of a sovereign QE program in Europe from Draghi, and is also the ECB chief selling the idea to Germany. Germany has long been opposed to a QE program.
Markets, however, have been expecting the ECB to eventually engage in QE, and the euro weakened in 2014 in anticipation of this action, as inflation has been steadily evaporating in the eurozone over the last year, running below 1% against the ECB’s target of 2%.
On Friday, the euro was starting the year with new lows, closing in on 1.20 against the US dollar.
In a note to clients on Friday, ScoGen’s Kit Juckes wrote that as the euro approaches 1.20, the consensus forecast of the euro ending 2015 at 1.18 against the dollar might be the first to be adjusted in the new year.
Earlier this week, German finance minister Wolfgang Schaeuble reiterated the German position that structural reform — which can also be read as austerity — is needed in Europe rather than easy money from the ECB.
“The ECB can make its decisions independently,” Schaeuble said, according to Reuters. “But cheap money should not be allowed to dent the reform zeal in some countries.”
Schaeuble added that, “But even if we’re the strongest economy, Germany can’t always get its way. At the end of the a compromise is what’s needed.”
Here’s the euro’s start to 2015.