The Monetary toolbox

Is ECB stimulus no better than a placebo?

Symbolbild – Arznei – Medikamente
Spot the fake medicine. Source: DPA

Sugar pills or the real thing? According to Daniel Gros, the German head of a prominent think tank, the multi-billion-dollar asset purchases by the European Central Bank have never been more than a placebo. The implication was that it was, in fact, a waste of taxpayers’ money.

Speaking at a conference on ECB monetary policy in Frankfurt, Mr. Gros pointed to charts showing movements in the risk spread for Italian government bonds – that is, the premium investors demand to hold this paper above safer investments, such as German securities. After the ECB unveiled its bond-buying stimulus in early 2015, the Italian risk spread initially narrowed, but increased again later.

“Because they [the bond purchases] are only placebos, you might as well stop the treatment right away,” quipped Mr. Gros, director of the Brussels-based Center for European Policy Studies.

Mr. Gros, who clearly thinks little of the bond-buying program, elicited a fierce rebuttal by Peter Praet, the ECB’s chief economist. The latter was backed in the next instance by Elga Bartsch, the European chief economist of Morgan Stanley, who praised the bond purchases and their effectiveness.

Remember the joke about two economists producing three opinions?

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.