ECB Lagarde’s problems: what did Draghi leave after he left?

UNITED STATES (OBSERVATORY NEWS) — The new head of the ECB, Christine Lagarde, did not get the most enviable legacy. Draghi launched QE, which has a lot of difficulties, but he will not rake the problem.

A month ago, when Mario Draghi from the ECB announced the return of QE, a fixed-term asset purchase program, skeptics immediately noticed that there can be no such thing as unlimited quantitative easing on the continent, since it is limited by the number of bonds the ECB can buy.

Such a farewell gift was left by Draghi to his heiress Christine Lagarde, who now has to solve a difficult task.

So, in September, experts noted that the estimated 20 billion euros per month and 5 billion euros for the purchase of corporate securities will be able to hold the QE program for about 9 months at current limits.

A month later, Reuters conducts its analysis. According to estimates, the ECB will be able to buy German bonds for a little over a year, after which it will have to change its own internal rules, and this, by the way, threatens internal and legal conflicts.

It is also worth saying that usually the decision to launch the QE program is made collectively. That is, most members of the board of governors should be in favor.

But this time, Draghi made a decision amid the discontent of most central banks. Conservatives feel and understand that the current policy has gone very far and managing the financial system is becoming extremely difficult, with virtually no way out of incentive programs.

Opponents of a new round of bond purchases, including the largest and richest countries in Europe (France, Germany and the Netherlands), argued that purchases were to be an emergency tool, and indefinitely purchases would be contrary to guarantees established by the ECB.

In addition, representatives of these Central Banks noted that the launch of QE leaves the ECB almost without “ammunition,” that is, in the event of a real powerful crisis, the regulator simply does not have any tools left. Recall that rates in the eurozone are already deep in negative territory.

Recall that the ECB has serious limitations. He can buy no more than one third of the debt of each country, as well as restrictions on the purchase of bonds in accordance with the share of each country in the ECB.

Reuters estimates that, with strict adherence to both rules, German bonds will remain on the market for purchases for a little over one year.

Thus, Christine Lagarde has to solve a practically unsolvable problem created by her predecessor.


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