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Speech by Mr John (Iannis) Mourmouras, Deputy Governor of the Bank of Greece, at the 33rd Meeting of Central Bank Governors’ Club of Central Asia, Black Sea Region and Balkan Countries (Shanghai, China), Shanghai, 21 May 2015.
I would like to share my thoughts with you on the problem of low and persistent inflation (and the appropriate policy responses) in the euro area, which numbers 19 Member States sharing a single currency, the euro.
I. Introduction
As you all know, the 2008 global crisis – mainly a crisis of credit and confidence expressed in both bond and equity world markets – turned into a sovereign debt crisis in the euro area in 2010, heightening market concerns about the sustainability of public finances of governments in the so-called europeriphery. That, in turn, hampered the expectations of the private sector, gave rise to prolonged fiscal consolidation, contributed to an anaemic recovery, to problems with the smooth transmission of the single monetary policy and thereby the achievement of the price stability objective. Over the course of this period, the ECB naturally took action against the fragmentation of the financial system in the area and took measures against a severe bank credit squeeze and a deep economic recession by introducing a very accommodative monetary policy stance which resulted in its latest decision: the quantitative easing (QE) implementation, which is essentially my topic today.
My remarks will focus on four areas. First of all, I will begin with a brief discussion of the recent inflation developments and prospects in the euro area. Secondly, I will briefly describe the QE practices of major central banks and, more precisely, those implemented by the Fed, the Bank of England and the Bank of Japan. Thirdly, I will discuss the ECB’s recent policy responses focusing in particular on its expanded asset purchase programme (QE). As you know, QE is rather a controversial idea. It has lots of critics. Opinions diverge across the board, from “one of the most radical monetary policy experiments of modern times” to “quasi fiscal policy”. And of course QE’s efficacy in Europe is of global significance, if only one takes into account the euro area’s big share in world output – not to mention the reactions of other central banks (e.g. in Switzerland, Denmark, Sweden, etc.). Last but not least, I will look into the challenges and risks that lie ahead for the overall stance of economic policy in Europe.