The ECB’s chief economist warned eurozone central bankers of the perils of delaying quantitative easing, according to records of a January meeting that shed light on how policymakers ‘broadly’ agreed to launch the scheme.
Speaking to the January 22 gathering of the ECB’s Governing Council, Peter Praet addressed the risks of waiting before launching a programme of quantitative easing — effectively printing money to buy government bonds.
The minutes give a bare-bones account of the discussion, but they do provide a glimpse of the pressure and tension involved in ECB decision making.
Praet’s presentation and the discussion afterwards convinced most of those present of the need for immediate action. Some argued that such a step should only be taken in ‘contingency’ situations.
The minutes, which give the clearest picture yet of how governors launched the scheme, show Praet told the meeting: “Due account would also need to be taken of the risks stemming from not acting at the present meeting, which might be higher than the risks stemming from acting.”
Officials wrote: “A reversal of recent financial market developments could be expected if no further policy measures were announced.”
“The associated positive impact... could be unwound and a higher degree of volatility or instability in the financial markets could create additional risks.”
In the end, most agreed: “There was a broadly shared view that the conditions were fully in place for taking additional monetary policy action at the current meeting.”
The pockets of resistance did gain some concessions. Only a fraction of the risk would be borne by the ECB; most would remain with the euro bloc’s 19 central banks.
That group also argued the buying of corporate bonds would be a better tactic, although it was “widely judged” the effect would be limited, since that market is so small. “At the same time, the remark was made that this asset class should not be excluded from future consideration, if needed”.