Jain Says ECB Tools Risk Being Less Effective Than Fed’sShane Strowmatt
The European Central Bank’s methods to spur economic growth may not be as effective as the Federal Reserve’s due to structural differences in their respective economies, Deutsche Bank AG co-Chief Executive Officer Anshu Jain said.
“The tools that the ECB has at its disposal may not be as all-encompassing or as effective as the U.S. quantitative easing have been,” Jain said in answer to audience questions at a conference in Berlin today. “The measures of quantitative easing which worked in the U.S. may not translate for Europe.”
The Federal Reserve targeted the U.S. mortgage market directly with its expansive measures, while Europe is dependent on bank lending, which is difficult to support while interbank lending confidence is low and appetite for loans is shrinking, Jain said.
Earlier this month the ECB cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($543 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan.
“I don’t want to sound ungrateful to the ECB,” Jain said, complimenting the ECB for its role in helping to stabilize the euro region. “The ECB has done what it could do, but that baton has got to pass.”
The ECB’s loose monetary policy hasn’t benefited all parts of the 18-nation bloc, with bank lending in the region declining even after sovereign bond yields from Spain to Italy dropped to record lows.
Lending to companies and households shrank 1.8 percent in April from a year earlier and rose a monthly 0.2 percent, the ECB said last month.
Jain expressed concern that the ECB’s expansive monetary policy may also reduce the incentive for governments to push on with measures to right their economies as confidence in the euro area returns and financing costs for some members fall.
“The ECB may even be creating preconditions which take some of that pressure off,” he said. “At some stage now, the baton has got to pass from the ECB to government.”