Mario Draghi did get round to announcing a much-anticipated new round of quantitative easing (QE) in the end, but never have nine minutes felt so long. The world tuned into the European Central Bank press conference at 1.30pm on Thursday expecting to hear its president speak. But the clock ticked and Draghi – apparently having trouble with an elevator – was nowhere to be seen. It was enough to test the nerves of even the most hardened watchers of the eurozone. They may have to be equally patient if they want to see QE do its job.
When the press conference did begin at 1.39pm, Draghi announced that the ECB would launch an expanded asset purchase or QE programme, a trillion euro bazooka which will result in combined monthly purchases of public and private sector securities by the ECB amounting to 60 billion euros.
The programme will begin in March 2015 and continue until the end of September 2016 – or until there is a sustained adjustment in the path of inflation. The ECB has an inflation rate target below, but close to, 2% over the medium term. QE is Draghi’s big plan to make it happen.
The big question everyone is now asking is – will it work? It’s not that easy to answer. For a start, what do we mean by “work”? And how is QE supposed to work anyway?
Achievable Goals
Let’s us start with the first question. In the Q&A session which followed the press conference, Draghi repeated once again that the mandate of the ECB is price stability. In other words, the primary goal of the ECB is to bring inflation close to its 2% target, not to boost growth and employment or to bring about greater financial stability.
