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The ECB has presented its quantitative easing (QE) program almost six years after the Federal Reserve System and the Bank of England. What took you so long to go in that direction?
The Federal Reserve System intervenes traditionally by buying securities directly on the market, while we typically provide liquidity to the banks via temporary lending operations. As a result of the financial crisis, we have adapted our monetary policy tools: for example, recently we lent for longer maturities of up to four years provided that banks provide loans to the economy and we guaranteed very low rates for an extended period of time, through forward guidance.
Why now?
Monetary policy accommodation via the banking system has reached its limit. With its asset purchase program, the ECB wants to regain control over its balance sheet: we will decide how much base money we will inject in the system.
Have previous measures failed?
Monetary policy has had a big impact on the economy. Without all the measures we have taken since the beginning of the crisis, we would probably be in the midst of a depression today. Our measures have led to a significant degree of accommodation. Additionally, we managed to decouple our monetary policy from the United States in line with economic fundamentals. Recently we have also seen some positive effects from the credit easing measures we took over the summer, but given the persistence of too low inflation for a prolonged period of time, the Governing Council decided to take additional measures.
Several economists question the effectiveness of QE in Europe: banks are still not in good shape; the euro area now has lower interest rates than the United Kingdom and United States at the time; and Europeans have fewer financial assets. How do you answer that?
QE comes in addition to all the other measures of monetary policy accommodation. QE is intended and expected, in particular to strengthen one transmission channel through which non-standard monetary policy measures work, the so-called portfolio rebalancing channel. This channel depends on the amount of liquidity that is created by the central bank. QE will reinforce this channel, which was judged to be too weak otherwise.
In future programmes and post-monitoring programmes will the ECB be out of the Troika?
This is still under discussion. What I can say is that the ECB came to be in the Troika out of European necessity. The fact that the ECB participates very closely in the design of the programme, in a role that we saw as advisory , means more information and better assurances.
The recent opinion of an Advocate General of the European Court of Justice is that the ECB should not get involved in financial assistance programmes.
This opinion relates to the outright monetary transactions and states that being a part of the Troika might lead to a conflict of interests. It is not clear whether this can be generalised.
The ECB says that it does not get involved in politics. However, it participates in the Troika and has influenced several countries to accept bailouts. How do your explain the ECB’s influence to voters?
We had weak institutions in Europe to deal with the crisis. The ECB was asked to participate in discussions on the financial assistance programmes in liaison with the European Commission. The fact that governments have implemented credible programmes, has allowed us to be more flexible in the context of the financial crisis.