New attempts of ECB to revive the economy are almost ineffective

Clemens Fuest

Clemens FuestThe new attempts of European Central Bank (ECB) to revive the economy at the moment are almost ineffective, according to the president of the Munich Institute for Economic Research (Ifo) Clemens Fuest. ECB probably will not increase its significantly its program for quantitative easing, as there are many indications that inflation is normalizing, like trends in crude oil price, employment and GDP growth.

“It is quite clear that monetary policy at the moment can hardly do anything for the Eurozone”, said Clemens Fuest. “ECB is unlikely to increase significantly its program for quantitative easing, as we already see signs for withdrawal from the policy of cheap money”, added he.

Over an year ago the collapse of oil prices managed to suppress the inflation in the Eurozone. Currently the prices fluctuate, but over lowest levels and thus generate a slight increase in energy prices. This is reducing the pressure on central bankers to promote economic activity in the Eurozone with methods of monetary policy.

“If inflation is back in range 1-2%, and economic growth is around 1.5%, the purchase program of covered bonds should be discontinued in March 2017, as the harmful side effects of the program are getting bigger”, said also the president of the Munich Institute for Economic Research (Ifo), Clemens Fuest.

Currently, ECB buys every month bonds worth several billion EUR to keep the interest rates low and allow companies to have access to more favorable financing.

A few weeks ago, the economists argued for transitional scenario in terms of leaving the EU from the UK. They calls for a transitional period after the official release of about 10 years, so that Britain can not suddenly leave the single market and to allow time for the conclusion of new agreements. It would be the most elegant and the only possible way, which will not cause harmful shocks for the trade and economy.

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