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ECB: QE or not QE?

Friday, September 05, 2014 - 02:10

The euro takes a major dive on ECB chief Draghi's surprise package of rate cuts and asset purchases - and bond yields move even lower. Has 'Magic Mario' worked a lasting spell on Europe's struggling economy - or just a temporary boost? David Pollard reports.

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The Trevi fountain in Rome. It's the city where Mario Draghi was born - and, after his surprise move to provide Europe with more easy money, the debate is on over whether, like the Roman gods, he may possess special powers. (SOUNDBITE) (Italian) BUSINESSWOMAN, LUCREZIA SPINELLA, SAYING:. ''It could help. I believe if the real estate market kicks off again, with mortgages and so on, everything else will follow.'' (SOUNDBITE) (Italian) LAWYER, TOMMASO PAPARO, SAYING: ''Draghi is cornered. He's been forced to try and do something to revive the economy because all indicators show how urgent it is.'' A cut to the ECB's three main rates has helped deliver the biggest slide in the euro for three years. Cheapening it for foreign buyers of eurozone goods - a desirable end in itself for the ECB. So has Draghi worked any lasting magic? Brenda Kelly of IG. (SOUNDBITE) (English) BRENDA KELLY, CHIEF MARKET STRATEGIST, IG. SAYING: ''I think it will be a temporary boost. I do believe what Mario Draghi has been saying, though, is that without fiscal solidarity and structural reforms it's all really, even of itself, irrelevant. I don't believe that extra liquidity in the system is going to help unless you get governments coming together and actually working together to escape this growth issue, or this lack of growth issue.'' Bond yields did sink further after Draghi also announced an asset buying programme - QE by any other name, according to James Bevan of CCLA Investment Management. (SOUNDBITE) (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: ''I don't subscribe to the view that there is no quantitative easing. After all, if they provide extraordinary finance to the banks and they then tell the banks they have to hold more government bonds on their balance sheet, they have achieved QE. That worries me because the story for euroland has got to be about generating growth, and as we know, quantitative easing just does not deliver it.'' Draghi wouldn't label the new measures as QE - but did say it had been discussed. With now even lower rates, an existing programme of targetted ECB loans should become more attractive for banks - and so, free up new lending. Rates are now at their lower limit, according to Draghi. Meaning those loans, or full-blown QE, could be the only other bets left for Europe's central banker to put his money on.

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ECB: QE or not QE?

Friday, September 05, 2014 - 02:10