Reuters Says ECB Had Bolder Strategy But Had to Compromise

The European Central Bank contemplated even bolder stimulus measures than it agreed at Thursday’s meeting but scaled back in a compromise move when conservatives, joined by several swing voters, pushed back, two sources with direct knowledge said.

Much of the ECB staff’s preparation centered on a six month extension of its bond buying program at a steady pace of 80 billion euros per month but ECB President Mario Draghi recognized that the proposal did not have a majority so he pushed for a compromise deal, the sources told Reuters.

The ECB then suggested a 12 month extension at 60 billion while more conservative nations were converging on six months at 60 billion. This led to the eventual compromise on nine months that still left Germany’s Bundesbank in opposition but gave some other hawks enough to secure a majority, the sources said.

The ECB declined to comment.

The compromise illustrates the tension within the Governing Council and the fatigue with quantitative easing as inflation remains far below the target and growth is still weak, even after 1.5 trillion euros of asset buys.

But with elections looming in four of the euro zone’s five biggest economies, the bloc is facing increased uncertainty, essentially forcing the ECB to maintain extraordinary support.

Hawks argued that keeping the asset buys at 80 billion would give the impression that the asset purchases are open ended and it would also make its eventual end more difficult, either requiring a lengthy wind down or a steep reduction that could upset markets.

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