ECB Easing

Running Out of Ammunition

  • Why it matters

    Why it matters

    The limits on how many bonds the ECB can purchase may tie the central bank’s hands when it comes to boosting the euro-zone’s economy.

  • Facts

    Facts

    • The European Central Bank has bought nearly €2 trillion in government and corporate bonds since launching its bond-buying program more than two years ago.
    • The ECB says it will buy a further €60 billion per month between now and the end of the year. It has yet to detail its plans for 2018.
    • Interest rates have also been kept at record lows of zero or below. Rates are only likely to rise again once the ECB’s bond-buying program has ended.
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    Audio

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FILE PHOTO: European Central Bank (ECB) President Mario Draghi arrives at the ECB Forum in Sintra in 2016
ECB President Mario Draghi appeared at a conference in Sintra, Portugal, this week to mixed reviews. Source: Reuters

It’s not the first time Mario Draghi will have felt misunderstood. On Tuesday, a speech he gave at the European Central Bank’s annual forum in Sintra, Portugal, sent the euro surging upwards. Markets believed he was signaling an earlier end to the ECB’s loose monetary policy. A day later, Mr. Draghi’s ECB let it be known that markets had gone too far: His statement was supposed to be more measured. The euro tumbled, though it was spiking again by week’s end.

The episode shows that communication is key as the Frankfurt-based central bank slowly thinks about how to wind down the extraordinary steps it has taken since the 2008 financial crisis to keep the euro zone’s economy from collapsing. Just ask the U.S. Federal Reserve, which is widely seen as having messed up its own exit a year ago.

But communication isn’t everything. The reality is the ECB can’t keep up its loose monetary policy, which has included buying nearly €2 trillion in corporate and government bonds, much longer. Whether Mr. Draghi likes it or not, there simply aren’t enough bonds left to buy – especially in Germany.

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