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News : EU Economy Last Updated: Dec 8, 2014 - 4:20 PM

ECB Meeting: Draghi may reaffirm plans for QE or fudge it
By Michael Hennigan, Finfacts founder and editor
Dec 4, 2014 - 8:17 AM

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The governing council will today meet in the ECB's new Frankfurt office tower

The governing council of the European Central Bank meets Thursday in Frankfurt and the big focus is on whether recent hints by ECB officials on plans to soon begin a program of purchasing large amounts of sovereign bonds in the market known as quantitative easing (QE) will be confirmed, to boost economic prospects in the single currency area.

In recent weeks Vitor Constâncio, ECB vice president, pointed to the first quarter of 2015 as the likeliest time frame, and most analysts expect the bank to refrain from new stimulus measures Thursday. However, the meeting should clarify how close the ECB is to launching QE.

Mario Draghi, ECB president, said on November 17 at the European Parliament that the bank stands ready to start QE if inflation in the 18-member country Eurozone fails to rise as anticipated. He told the Parliament that the governing council remains unanimous in its commitment to using additional unconventional instruments within its mandate.

In November the annual inflation rate was at 0.3% compared with the central bank’s target of below but close to 2%

In Asia this morning the US crude oil benchmark West Texas Intermediate for January delivery rose 33 cents to US$67.71, while Brent crude, the international benchmark, for January gained 41 cents to US$70.33 in late-morning trade.

Prices hit five-year lows Monday, with WTI hitting $63.72 and Brent at $67.53 - the benchmarks have collapsed almost 40% since June 2014 peaks.

The Financial Times reports that Mario Draghi has signalled that he believes quantitative easing can boost growth in a region where economic stagnation remains a threat.

However, it said some members of the governing council are unconvinced that the benefits of government bond buying outweigh the cost. They include two members of the ECB’s executive board: Sabine Lautenschläger of Germany, who last weekend warned government bond buying would let troubled sovereigns off the hook, and Yves Mersch of Luxembourg.

Coupled with Jens Weidmann, Bundesbank president, it means that the two German members on the council oppose QE - this week  Weidmann talked up the benefits of falling oil prices.

The FT also says some of the concerns of the hawks, would be eased if countries including France and Italy, made more progress on structural reforms. Without government action, the foundations for more ECB bond buying in the new year look shakier.

This week PMI (purchasing managers' index ) composite index of manufacturing and services showed that Eurozone growth was at a 16-month low.

Eurozone retail sales volume up in October - remains at 2004 level

Manufacturing PMI surveys show Germany, France & Italy contracted in November

German manufacturing wages are the highest of big industrial nations

Dreams of European Growth: Euro began with Germany, France and Italy in sick ward

Eurozone inflation fell to 0.3% in November; Jobless rate in Germany lowest in Europe in October

Manufacturing PMI surveys show Germany, France & Italy contracted in November

GDP up by 0.2% in Eurozone in Q3 2014 and up by 0.3% in EU28

German employment at record high

France's 10-year bond yield below 1% for first time; Draghi pushes for economic union

Stagnation in the Eurozone as German aversion to inflation to continue

German industrial production may expand only ¾% in 2015

European Commission forecasts slow recovery with very low inflation

© Copyright 2011 by Finfacts.com

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