MARIO DRAGHI has shown a remarkable ability to find a way out of tight spots since he became boss of the European Central Bank (ECB) in 2011. Has he done so again? At its regular monetary-policy meeting, on December 8th, the ECB’s governing council decided to extend its programme of quantitative easing, or QE, by a further nine months to December 2017. It also said it would reduce the monthly pace of bond-buying from €80bn to €60bn from April. But the ECB has given itself the option of stepping up the pace of bond-buying again, should markets become choppy. As the ECB’s prepared statement puts it: “if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation.”
The ECB has attempted a difficult trick. On the one hand, a firm signal that the bank would start to “taper” its bond purchases ran the risk of unsettling financial markets, which had been largely unmoved by the No vote in Italy’s referendum, on December 4th. On the other hand, if the ECB were to keep buying bonds at a rate of €80bn a month, it would eventually run up against some self-imposed limits—namely, that it should not buy more than...Continue reading
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