December 4, 2014 / 7:24 AM / 5 years ago

Fed's Fischer says govt bond buys by ECB would have positive effects -La Repubblica

MILAN, Dec 4 (Reuters) - The European Central Bank should follow the example of the U.S. Federal Reserve and buy government bonds to prop up the tottering euro zone economy, the Fed’s vice chair Stanley Fischer was quoted as saying in an Italian newspaper.

“The same arguments in favour of quantitative easing (bond purchases) that demonstrated their effectiveness for the U.S. economy are valid for Europe too. If the ECB moves in that direction, it will have positive effects,” Fischer told La Repubblica daily in an interview.

With the ECB Governing Council meeting later on Thursday, Fischer said ECB President Mario Draghi was facing a “doubly difficult position, both for the economic situation of the euro zone and the decision-making ability of the ECB.”

He also said there were no “magic wands” and quantitative easing was not the only thing the ECB should do, adding it also needed European banks to boost their capital.

“The U.S. economy would not be where it is today without the speedy implementation of stress tests at the beginning of 2009 by the Fed, which then forced banks to recapitalise. The Europeans still need to do what we have done,” he said.

Fischer also said he was not worried about the fall in oil prices increasing the risk of deflation.

“It’s a complicated matter. On the one hand, it is worrying not to have inflation at 2 percent. With inflation at zero, you should push interest rates below zero. But if you look at oil, I am not worried about that.

“It is a temporary disinflation, that makes oil consumers richer and therefore helps growth. If there is a good deflation and a bad deflation, the fall in oil prices is in the first category.”

Reporting by Silvia Aloisi; Editing by Susan Fenton

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