ECB’s QE Plans – Who said what?

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ECB

The Euro is known to react to comments from ECB officials as anticipation continues to grow for the proposed QE announcement during its January 22nd meeting. The speculation for the Fed style quantitative easing was brought forth from an earlier estimated Q1 time frame to January as countries such as Spain posted negative inflation numbers and while the other major economies such as Germany, Italy and France teeter on the brink of deflation.

In the run up to the ECB’s January 22nd meeting however, a lot of comments from ECB officials have been making the news. Here’s a quick recap of a few of those.

Over the end of year holidays, the first notable remark came from ECB’s economist Peter Praet who stressed that the ECB must act now to avert a Japanese style deflation, clearly hinting that the ECB should take steps to prepare plans for its QE program, something which is now understood is to be underway.

On the opposite side of the camp, came comments from Jens Weidmann, chief of German Bundesbank and ECB governing council member, who continued to oppose the ECB’s plan of purchasing sovereign bonds. The main concern highlighted by Germany comes from the fact that if the ECB starts to purchase sovereign bonds, it would make the countries to take on more risk instead of trying to implement fiscal reforms.

During the past weeks, the ECB Chief Mario Draghi who belongs to the QE camp wrote a letter to an MEP member stating that the ECB remains unanimous in its efforts to stave off the threat of deflation which includes measures such as changing the size composition and pace of the bond purchases.

The same views were also echoed by other ECB officials including Nowotny and Noyer who continued to press the ECB into acting sooner rather than try to buy time.

The major risk to how the QE will be implemented remains a major question with the European Court of Justice due to give its ruling on the ECB’s OMT program tomorrow. A verdict giving the ECB a clean chit could mean the QE program could involve the European Central Bank to purchase sovereign bonds directly, as opposed to other floating ideas such as using the regional Central Banks to purchase bonds in order to contain the risks. There have also been talks about the ECB purchasing corporate bonds, but its effect is likely to be negligible.

Further adding confusion to the prospects of QE comes from the political risks from Greece, which has seen the Syriza, an anti-austerity party gain major lead in opinion polls, a trend that is seen even in Portugal and Spain which head to elections later this year.

Considering the fact that Greece’s election results will be held over the weekend, just after ECB’s meeting in January, it will be a close call to see how the ECB will steer itself out of the tricky situation, especially if the Syriza party is bound to win elections.

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