Stock markets boosted by ECB bond-buying plan

With its quantitative easing programme, announced last Thursday (January 22), the European Central Bank plans to revive the European economy and prevent deflation in the eurozone by buying 60 billion euros in governments bonds per month until well into next year. Although it’s too early to evaluate the impact, Fabian Zuleeg, director of the European Policy Centre think tank in Brussels, has pointed out that stock markets have gone up because they believe the ECB’s plans will bring more economic activity, which means more growth.

Starting in March and lasting until at least the end of September 2016, the European Central Bank (ECB) will buy a total of 1.1 trillion euros in government bonds, a process also known as quantitative easing.

This so-called “historic measure” undertaken in the EU economy has already boosted European and global markets.

According to Zuleeg, the positive reaction of the markets wasn’t a surprise since the eurozone is important component for the global economy. “We’ve had depressed demand in the eurozone for a number of years now, with the crisis,” he explained in an interview with Euranet Plus. “Anything which looks like it’s going to boost consumption, demand, imports within the eurozone will also have an impact on the rest of the world.”

Zuleeg pointed out that 1.1 trillion euros is quite a significant amount. But, he explained, “it’s an important component of an overall strategy, but it cannot be the only step. There needs to be more on the table to tackle the underlying structural problems in the European economy, which predominantly mainly means low growth and not just low inflation.”

Laeticia Markakis, of Euranet Plus, spoke with the EPC’s Fabian Zuleeg

Public investment needed to boost EU growth

ECB President Mario Draghi stressed on Thursday that this plan will boost the eurozone, but warned that governments should also take the responsibility and invest.

According to Zuleeg, the ECB’s plan should be seen as a part of the 315-billion-euro investment plan outlined by the European Commission last month. He stressed that “what’s missing at the eurozone level is public investment.”

Draghi announced that the risk of any losses would stay mainly with national central banks. They will ensure 80 percent of the bonds purchased, and the ECB will take the other 20 percent.

For Zuleeg, in the short term this will make little difference for the markets. “The markets will see significant amounts of euros are going to be pumped into the systems. Whether this is through the national banks or through the ECB directly, won’t affect the markets so much,” he said.

The finance ministers of the eurozone, gathering in Brussels on Monday (January 26) for a Eurogroup meeting, were expected to talk in detail about the ECB’s purchase plan.

• Author: Laeticia Markakis, Euranet Plus News Agency

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