Brian Hayes MEP today said that the European Central Bank needs to completely redesign its Quantitative Easing programme before any expansion of QE is considered. Mr. Hayes made his comments following a statement by ECB President Mario Draghi that QE will be re-examined in December.
“President Draghi has kept an open door policy to expand QE even further than the approximately €1.1 trillion originally planned. While expanding QE might be helpful, I do not believe this should be considered until QE is redesigned and we see inflation moving in the right direction. QE has so far not had its desired impact; inflation should be increasing on the back of QE yet in recent months it has been steadily falling and now stands at -0.10% for the whole Eurozone.
“In my opinion the QE programme needs to be completely redesigned. First of all, there needs to be more risk-sharing between central banks. At the moment, only 20% of asset purchases are subject to risk-sharing through the ECB, the other 80% fall onto the shoulders of national central banks. This makes it more difficult for some central banks to inject money into the economy knowing that they bear responsibility for any potential default.
“Secondly, there needs to be a much greater level of public and private investment through Public Private Partnerships. For QE to work properly, it needs to be mixed with adequate levels of stimulus. Jean-Claude Juncker’s €315 billion EU investment plan will have an important impact but Member States themselves need to take ownership and get investment going again in their economies. Germany is a prime example of a country that needs a radical increase in investment.
“Finally, there needs to be a quicker implementation of the EU’s new Capital Markets Union plan. The idea behind this plan is to open up new forms of lending to businesses and households, rather than relying on traditional bank lending. QE will only work when households and businesses are borrowing sufficiently. At the moment, households and companies across the Eurozone are busy trying to pay off debts and are not in a strong position to take out new loans. The Capital Markets Union plan is expected to be completed by mid-2019 but we need a quicker timeframe for the essential components of the plan.”