Monday

22nd Apr 2019

Deflation fears trigger ECB's 'bazooka'

  • Draghi: "We have shown we are not short of ammunition" (Photo: ECB)

The European Central Bank (ECB) once again on Thursday (10 March) used its "bazooka" of dramatic measures to try to revive the European economy threatened by slowing growth, global uncertainties and a new risk of deflation.

The objective was also psychological, as the ECB chief Mario Draghi tried to convince market watchers of the effectiveness of policies that have so far failed to produce decisive results.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The ECB decided to raise from €60 billion to €80 billion the amount of bonds it will buy each month in order to pump more money into the economy. The asset-buying programme known as quantitative easing will now include bonds issued by non-bank corporations.

In another move with symbolic implications, the ECB decided to reduce the rate on bank, states and institutions deposits to the ECB further into the negative, from -0.3 percent to -0.4 percent.

The interest rate on the main refinancing operations, by which the ECB lends money to banks for a week, is lowered to 0.00 percent, down from 0.05 percent. The rate for the marginal lending facility, the overnight credit to banks, is down from 0.30 percent to 0.25 percent.

"It's a fairly long list of measures," Draghi said at a press conference at the ECB headquarters in Frankfurt.

He assured that "each one of them was very significantly devised to have a maximum impact into boosting the economy and a return to price stability".

Ammunition

"We have shown we are not short of ammunition," he said, telling critics that the decision made " full justice of doubts about [the bank's] willingness to act".

Despite the display of confidence, Draghi and the governing council of the eurozone central bank acted under the pressure of the degrading perspectives of the EU economy.

The ECB revised downward its growth forecasts to 1.4 percent this year, 1.7 percent in 2017 and 1.8 percent in 2018. In December it was expecting 1.7 percent in 2016 and 1.9 percent in 2017.

The other concern is weak inflation, mainly caused by falling energy prices, that could lead to lasting falling prices and wages.

While the year-on-year inflation was negative in February, at -0.2 percent, the ECB now forecasts a 0.1 percent inflation rate in 2016, far below the 1 percent rate it expected in December.

To counter pessimism, Draghi assured that Europe was "not in deflation" and that although inflation was negative at the moment, it would "go up again, basically because of [the ECB] policy measures".

Reform efforts

Moe than a year after the ECB launched its quantitative easing programme and three months after it lowered the deposit rate with no improvement of the eurozone prospects, Draghi justified his action as a balancing act.

If the bank had done nothing, he said, "we would have been in a disatrous deflation". On the other hand, he denied having had an "overreaction to lower oil prices" and explained that lower global growth prospect and a tightening of financing made new measures necessary.

While expressing the ECB's resolve, he said it did not consider necessary to further reduce rates. He however specified that "new facts can change the outlook".

Once again, Draghi made clear he did not intend to be the sole person in charge of keeping the eurozone on track and called on member states to do their homework.

"As indicated by the European Commission, the implementation of country-specific recommendations continued to be fairly limited in 2015," he noted in his presentation of the measures taken.

"Reform efforts thus need to be stepped up in the majority of euro area countries. Fiscal policies should support the economic recovery, while remaining in compliance with the fiscal rules of the European Union."

The ECB chief insisted that "full and consistent implementation of the Stability and Growth Pact is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies."

EU sneaks in bleak economic report

Annual country reports published Friday afternoon by the European Commission highlight challenges ahead for the EU economy.

Opinion

The never-ending crisis of European leadership

European leaders need to confront extremist populism with a clear-cut solution leading to economic growth and improved living standards or risk disintegration - a view from the US.

ECB brushes off German criticism

"We obey the law, not the politicians," the president of the European Central Bank, Mario Draghi, said after German finance minister criticised its anti-inflation policies.

'Be patient,' ECB chief tells Germany

European Central Bank president Mario Draghi keeps interest rates low and answers German criticism by saying they were in everyone's interest.

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Counter BalanceSign the petition to help reform the EU’s Bank
  2. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  3. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  4. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  5. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  6. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  7. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  8. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  9. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  10. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  11. Nordic Council of MinistersNordic commitment to driving global gender equality
  12. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan

Latest News

  1. Romania drafts EU code on NGO migrant rescues
  2. Bulgaria, Hungary, and Malta shamed on press unfreedom
  3. EU drafts $20bn US sanctions list in aviation dispute
  4. Brunei defends stoning to death of gay men in EU letter
  5. US Democrats side with Ireland on Brexit
  6. Wifi or 5G to connect EU cars? MEPs weigh in
  7. How Brexit may harm the new EU parliament
  8. EU parliament backs whistleblower law

Stakeholders' Highlights

  1. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  2. Nordic Council of MinistersNordic talks on parental leave at the UN
  3. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  4. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  5. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  6. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  7. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  8. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  9. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  10. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  11. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  12. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov

Join EUobserver

Support quality EU news

Join us