Reuters reports that over the weekend the
Frankfurter Allgemeine Zeitung, the German newspaper, reported an ECB study
which showed that €1tn in additional money supply via what's called quantitative
easing (QE) or bond buying would raise Eurozone inflation by just 0.2 percentage
points, while another model came up with 0.8 points.
Reuters says: "We have established the studies do
exist and if they are believed it’s hard not to conclude that the bar for
instigating QE remains high, whatever the rhetoric."
At the IMF, the debate about growth over austerity will be reignited after the
Fund urged the ECB to do more and a reshuffled French government said new tax
cuts might mean it takes longer to meet its EU budget deficit targets.
The amount of QE required would be about €80bn
per month -- the Federal Reserve had been buying $85bn in bonds every month
since September 2012 until it began tapering by $5bn per month from January this
The Financial Times says the fact that the
assessment was leaked to FAZ, a bastion of German economic orthodoxy, has
reignited suspicions by some ECB insiders of a campaign to foment German public
opposition to QE as European parliamentary elections loom at the end of May.
Eurozone inflation fell to 0.5% in March, compared with the central bank's
target of "below but close to" 2% and last Thursday,
Mario Draghi, ECB president, said that the governing council was
united in supporting more radical action, such as QE, should price pressures
even become more subdued.
The ECB forecasts inflation at 1.1% in 2014, 0.2
percentage point lower than the previous prediction. It sees inflation at 1.3%
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