ECB Policies Not as Bold as They Seem: Bootle

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June 10 (Bloomberg) –- Capital Economics Managing Director Roger Bootle discusses the ECB’s latest actions and why he says they're not so bold. He speaks to Anna Edwards and Mark Barton on Bloomberg Television’s “Countdown.” (Source: Bloomberg)


The managing director of capital economics and the author of "the trouble with europe," which we will talk about in the next section.

Good to see you.

Calling the ecb's actions that they bazooka, but you say it is not as bold as it seems.

It is a big thing to cut rates into negative territory, the first large central bank to do that.

I think that took some doing.

But 10 basis point is not going to achieve an awful lot.

If you get on with deflationary reforms, you have got to do it early.

The bank of japan was slow and lucked into move.

Deflationary forces grounded them down and eventually, they did what they should have done earlier.

Is the problem with the ecb.

We spoke to an economist earlier who thought that what was happening now in terms of peripheral bond yields, which seemed to have been falling since the ecb meeting, is that banks are going to be able to take money from the ecb and go out and buy government bonds.

The conditions attached to that money not as onerous as economists thought.

That the banks would be forced to lend that into the real economy.

Are you surprised, that lack of conditionality?

I think that is what is happening.

I do not think this is changing the game in a meaningful sense.

What europe needs is real demand in the economy to pick up food if the banks -- to pick up.

If the banks are buying government bonds, that is not creating demand.

It keeps the yields down, which is a good thing, but how are you going to get people spending?

This is the key thing.

It is not happening.

And you have cited some great figures.

You said the qe undertaken by the fed and the bank of england equate to about 25% of gdp.

The sterilization of the ecb bond purchasing program, the 400 billion update from the target of ltro will be 4.2%. that is a massive gap.

Does that gap need to be filled?

Could it be filled or not?

I think it could be.

This is a largely political thing.

The germans fundamentally do not approve of this policy.

They have had to been -- to be controlled -- to be cajoled to where the ecb is now.

What the ecb needs to do is embrace full-blown qe.

And to tell the markets that that is what they are doing.

We are going to go on buying government bonds and private bonds without limit.

That is what it needs to be able to say.

Of course, it cannot.

Isn't it going to try to deal with the same problem that you say is not actually the problem?

That type of measure is designed to reduce the costs of banks, but it does not force them to lend into the real economy.

It does not force companies in the real economy to borrow.

You said you do not think there is the demand there.

The limit to what you can do -- i would not be starting from here.

Given where we are, qe is the only thing we have got.

One of the advantages of massive qe is that it will have an effect on the exchange rate.

You have got to tell the markets that you have unlimited firepower.

We are going to do a little bit

This text has been automatically generated. It may not be 100% accurate.


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