FRANKFURT: New policy measures announced by the European Central Bank last week do not mark a shift towards a more “Anglo-Saxon” style of policy-making in the eurozone, a top ECB official said on Wednesday (Thursday in Manila).
“The decision to launch an ABS [asset-backed securities] purchase program is the first result of an intensive process of preparation that is still ongoing,” ECB executive board member Yves Mersch told a banking conference.
“It’s clear for me that these measures are aimed at the transmission channel of monetary policy. They cannot be equated with a wider programme of quantitative easing or QE,” as practised by central banks such as the US Federal Reserve or the Bank of England, Mersch said.
“Neither should they be seen as opening the door to QE,” he added.
In a bid to prevent the rot of deflation setting in the single currency area, the ECB last week cut its interest rates to new all-time lows and unveiled plans for an ABS purchase scheme to help kick-start credit in the region.
Asset-backed securities are bundles of individual loans such as mortgages, auto credit and credit-card debt that are sold on to investors, allowing banks to share the risk of default and encouraging them to offer more credit.
Some ECB watchers believe the ABS scheme is the first step towards much broader QE, where the central bank would buy up sovereign bonds on a large scale to inject cash into the economy.
“But the economic logic of an Anglo-Saxon-style QE program cannot be transferred one-on-one onto a bank-based financial system like the euro area’s,” ECB board member Mersch said.
Neither was there any guarantee of the effectiveness of such a scheme, given the sharp drop in yields, he argued.
“And it’s almost self-evident that buying sovereign bonds would throw up not insubstantial institutional, instrumental and legal questions,” Mersch said.
There is a lot of resistance to a possible program of QE in the euro area, if it were to entail the ECB buying up sovereign bonds because many critics—including the German central bank or Bundesbank—view that as monetary financing, or printing money to pay a country’s debt, which the ECB is expressly forbidden from doing. AFP