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23 Jan 2015
There is no guarantee that QE will work – ING
FXStreet (Barcelona) - According to the Research Team at ING, there is no guarantee that QE will work as ECB can only prepare ground for investment, but to incite further investment and consumer spending the ECB might have to resort to further reforms.
Key Quotes
“The impact of QE in the Eurozone is highly controversial. Only time will tell which arguments were right or wrong. Obviously, the ECB hopes for an investment boom on the back of QE and even lower interest rates.”
“However, whether ECB purchases of government bonds will really free new lending space at banks or through higher equity prices room for corporate investment is far from certain. Therefore, the safest option for a positive QE impact seems to be through a weaker euro exchange rate and some positive sentiment effects.”
“All in all, it seems that the ECB hopes for a positive end to fighting the euro crisis. It all started with measures to keep the Eurozone together and has now led to a series of activity – reviving measures (just think of negative deposit rates, TLTROs, ABS and covered bond purchases).”
“There is no guarantee that QE will work. The ECB can prepare the ground for more investment and activity but it cannot force consumers to spend or companies to invest. This also requires further structural reforms, fiscal support and probably a longer, positive, vision for the entire Eurozone.”
“Against this background, the QE announcement is historic but it was also the ECB’s last trump card. There are no more hidden aces. We have heard it often in the past but the expression that the ball is now back in the court of Eurozone governments has never been more true than yesterday. Even worse, the ECB will not be able to pick it up again if governments try to play it back.”
Key Quotes
“The impact of QE in the Eurozone is highly controversial. Only time will tell which arguments were right or wrong. Obviously, the ECB hopes for an investment boom on the back of QE and even lower interest rates.”
“However, whether ECB purchases of government bonds will really free new lending space at banks or through higher equity prices room for corporate investment is far from certain. Therefore, the safest option for a positive QE impact seems to be through a weaker euro exchange rate and some positive sentiment effects.”
“All in all, it seems that the ECB hopes for a positive end to fighting the euro crisis. It all started with measures to keep the Eurozone together and has now led to a series of activity – reviving measures (just think of negative deposit rates, TLTROs, ABS and covered bond purchases).”
“There is no guarantee that QE will work. The ECB can prepare the ground for more investment and activity but it cannot force consumers to spend or companies to invest. This also requires further structural reforms, fiscal support and probably a longer, positive, vision for the entire Eurozone.”
“Against this background, the QE announcement is historic but it was also the ECB’s last trump card. There are no more hidden aces. We have heard it often in the past but the expression that the ball is now back in the court of Eurozone governments has never been more true than yesterday. Even worse, the ECB will not be able to pick it up again if governments try to play it back.”