Draghi Promises QE But Has to Convince Germany First

Expectations for further policy action at the European Central Bank’s meeting on Thursday are running high after ECB President Mario Draghi pledged to use all available tools to keep prices in check.

But investors may be in for disappointment as resistance to quantitative easing (QE) remains stiff, particularly in Germany, while there is an increasing recognition that the ECB may not be able to solve Europe’s problems alone.

Draghi told a central bank conference in Jackson Hole on Aug. 22 that financial market inflation expectations were falling significantly and the ECB would use “all available instruments needed to ensure price stability”.

 
In a dramatic departure from debt-cutting orthodoxy, he also said there was scope for fiscal policy – more government spending – to play a greater role in reviving growth, an apparent acknowledgement of the limits of the ECB’s powers.

German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble were reported to have called Draghi seeking clarification and Schaeuble later said he had been “overinterpreted”.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza