LONDON There is nothing to stop the European Central Bank from conducting full-scale quantitative easing like that used by the U.S. Federal Reserve and the bank has in the past discussed how it might work, former ECB board member Gonzalez-Paramo told Reuters on Thursday.
Jose Manuel Gonzalez-Paramo, who finished his term at the bank earlier this year, said that if the situation warranted it, the ECB was well within its mandate to buy bank and company bonds alongside sovereign debt to fend off the threat of long-term deflation.
The ECB has bought sovereign bonds as part of its efforts to calm the euro zone's debt crisis but has always steered clear of the sort of outright monetary boost to the economy given by the Fed or Bank of England.
That is partly due to long-held nerves in Germany that it could lead to a surge in inflation but also to the bank's wish to avoid any hint that it was inching toward effective funding of government borrowing.
"The ECB can do anything including QE," Gonzalez-Paramo, now back working as an academic in Spain, told Reuters in an interview in London.
He said that the bank could buy both commercial or private bank or company debt as well as sovereign bonds.
"You could manage with a basket of bonds," he said. "QE is QE. You simply buy massive amounts of paper.
Asked if the possibility of quantitative easing had been discussed by ECB policymakers in the past, Gonzalez-Paramo said: "There was always a theoretical reflection. (...) How it would affect our balance sheet if we went into the buying market."
But he added that the bank's policymakers never got to the stage of drawing up firm plans on what it would buy if it decided it would go down that route.
"That would be going to a very technical level."
(Editing by Patrick Graham)