Coeure Sees No Signs of Deflation That Would Justify QE

European Central Bank Executive Board member Benoit Coeure said he doesn’t see any signs of deflation or a need for quantitative easing, which is different from the ECB’s new bond-purchase program.

“In the euro area as a region, there are currently no clear signs of deflation fears that would justify QE,” Coeure said in a speech in Paris today, according to a text posted on the ECB’s website. “In addition, the channels of transmission are different.”

ECB President Mario Draghi on Sept. 6 unveiled details of an unlimited bond-purchase program, dubbed Outright Monetary Transactions, designed to regain control of interest rates in the euro area and fight speculation of a currency breakup. Bundesbank President Jens Weidmann has criticized the plan, arguing it’s tantamount to financing governments by printing money, a strategy policy makers in the U.S. and the U.K. have employed to help their economies.

“QE is meant to ease the general credit conditions which are considered by the central bank to have become tight in a situation in which the short-term interest rate cannot be reduced further,” Coeure said. “OMTs are meant instead to restore homogeneous credit conditions throughout the euro area, but not necessarily to ease credit conditions in the aggregate.”

Aid Request

ECB bond purchases hinge on struggling countries requesting aid from one of Europe’s rescue funds and signing up to conditions. That makes the OMT a “much better program” than the previous one, which was terminated earlier this month, ECB Executive Board member Joerg Asmussen said on Sept. 11.

The “strict and effective conditionality” of the ECB’s new bond-purchase plan preserve the incentives for governments to implement reforms, Coeure said. “As a consequence, OMTs can succeed only if action is taken by governments, at national and at euro-area level, to restore long-term growth and bridge fiscal and economic imbalances.”

Bond purchases under the new program won’t constitute monetary financing of governments, create inflation or expose the ECB to large risks, Coeure said.

“OMTs will be conducive to the monetary authority restoring its power to control credit conditions in the euro area and, through that channel, inflation in the medium term,” he said. “Will OMTs bring large risks to the central bank’s balance sheet? The answer again is: no.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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