Benoit Coeuré, member of the executive board of the European Central Bank (ECB), confirmed the debate on sovereign bond purchases shortly after the governor Mario Draghi has indicated that the solutions were limited against the imminent risk of deflation. In an interview with BFM Business TV, Jean-Claude Trichet, Draghi’s predecessor, reminded that in the past stabilization of inflation was fine, except that with the current risk of deflation, “we are in a situation where there is a real risk concerning expectations of inflation rates.”
As for the ECB’s action, saying that the German jurists who thought that a Quantitative Easing (QE) is illegal were not within the boundaries of the law even if Germany’s budgetary austerity is right, Trichet added that in the medium or long term, “the ECB is perfectly entitled to think that it can do more by itself.” This is about funding monetary policy, not about funding the States, so in practice it means the ECB has no less important mandate than its foreign counterparts. Since the beginning of the subprime crisis in 2007 during which Trichet was named Person of the Year by the Financial Times, and during the sovereign debt crisis in the euro area since 2010, the ECB has actually done much.
Not only the ECB gave a double guarantee of liquid assets for both commercial banks and for countries with sovereign debt issues, but the ECB has also managed to lower the interest rates of such debt to a level that is most often lower than the US debt (i.e.: currently 1,8 percent instead of 1.5 percent for Spain). However, the ECB must now do more by lowering real interest rates for the real economy with businesses as a priority, Trichet insisted. Yet the ECB cannot solve all the issues alone, Trichet added. “The ECB cannot substitute for the parliaments, the governments,” Trichet said. There are still structural barriers to growth that demand reforms and that is the Nations’ responsibility to undertake them.
Asked about the decision of the Swiss National Bank (SNB) to end the Swiss franc minimum exchange rate against the euro, Trichet said that being an Exchange Rate Mecanism (ERM), it was therefore impossible to “inform ahead (of it)”. As for Greece, it did everything it had to do in order to stay in the euro area, said Trichet who doesn’t believe that Syriza, that is said to win the early general elections on January 25, 2015, will choose to exit the single currency area. The next monetary policy meeting of the ECB’s Governing Council is scheduled for Thursday, January 22, 2015 amid very strong expectations of a massive QE like the Federal Reserve (FED)’s over the previous years.