Do not expect too much from ECB on QE

Excerpts from 

 Interview with Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank, in Der Spiegel, conducted by Mr Michael Sauga on 7 January 2015 and published on 10 January 2015.

"I regard purchases of government bonds as the last resort. "

"In this context, the peculiarities of the euro area as a currency area encompassing 19 sovereign states must be taken into account. There must a threat of exceptional risks materialising, and there must be reasonable balance between the benefits of, and risks entailed in, such a programme. I do not believe that to be the case at present. What we should do instead is wait until the measures that we have put into place only recently can take full effect."

 ..."you can't speak of deflation at the moment. What we are observing is a persistently low inflation rate that is due, among other factors, to the fact that prices of energy and food have declined significantly. At the moment, however, I cannot see any signs of consumers expecting steadily falling prices and thus changing their spending patterns."

"Credit institutions in southern Europe are currently not suffering from a lack of liquidity. The European Central Bank has ensured that through a number measures over past months. Rather, many banks are hesitant in extending loans because they believe that there is too great a risk that debtors will not be able to redeem them. I do not expect that the ECB purchasing government bonds on a large scale would change that in a sustained manner. Instead, banks must again be in a position to see that their borrowers have decent economic prospects."

"Interest rates are already very low. In Italy and Spain, for instance, the yields on ten-year government bonds are just below the yield on comparable US bonds. How much more should yields decline and how large must a programme be to achieve such a decline? In addition, I am asking myself whether, by forcing yields down further, we would not encourage governments to increase their debt again, instead of focusing on sustainable budgetary and economic policies. That would be the exact opposite of what is necessary."

"The comparison with the Fed is misleading because we have a different economic and political set-up in the euro area."

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