After a breathless year of action and now a new political crisis in Greece, the European Central Bank (ECB) might finally roll out its heavy artillery next year in its battle against deflation, analysts said.
Bank watchers said that new elections due next month in debt-mired Greece could prove unsettling for European partners, but should remain manageable for the eurozone as a whole.
This means that the central bank’s overriding challenge in the new year is likely to continue to be preventing the single currency area from sliding into deflation.
“I see a broad consensus around the table in the governing council that we need to do more,” bank executive board member Benoit Coeure said recently.
So far, the bank has rolled out a wide range of measures to try to get eurozone inflation back up to the level of 2 percent that it regards as economically healthy. It has cut its interest rates to new all-time lows, made unprecedented amounts of cheap loans available to banks via its Long-Term Refinancing Operation and Targeted Longer-Term Refinancing Operation programs, and embarked on asset purchase programs — asset-backed securities and covered bonds — to pump liquidity into the financial system.
However, at 0.3 percent, area-wide inflation is still alarmingly low and could fall even further as a result of falling oil prices, so the bank is examining the possibility of quantitative easing.
This is the large-scale purchase of sovereign debt, a policy pursued by other central banks to boost their moribund economies, but avoided by the eurozone.
Most observers believe the only question about such a program is in its scheduling, which could be as early as Jan. 22 or a bank governing council meeting on March 5.
Germany’s Bundesbank president Jens Weidmann is an outspoken opponent of easing, which he said would take the ECB way out of its current legal remit.
In a newspaper interview over the weekend, Weidmann spoke against seeing quantitative easing as a panacea for the eurozone’s ills.
“Disappointment is inevitable, and the real nature of the problems risks getting lost from sight,” he told the Frankfurter Allgemeine Sonntagszeitung.
German Minister of Finance Wolfgang Schaeuble agreed, saying: “Cheap money should not be allowed to dent the reform zeal in some countries. There is no alternative to structural reforms — if things are going to improve again.”
However, central bank president Mario Draghi said this month that “we do not need unanimity” on the council and a program of easing could be designed in such a way to win consensus.
Frankfurt-based Commerzbank AG economist Michael Schubert said Draghi and his supporters would face challenges in persuading the council to support easing.
Nevertheless, some analysts think that while large-scale bond purchases might have worked for the US and UK, the economic and legal setup in the eurozone meant that easing would not be the cure-all that many hope it will be.
“It is important to note that the sovereign bond purchase program as a standalone is unlikely to have the dimensions of the US, British or let alone Japanese programs,” Hamburg-based Berenberg Bank economist Christian Schulz said.
UniCredit economist Erik Nielsen said that too much was being expected of the ECB, which has repeatedly taken on the role of firefighter in the long years of the eurozone crisis, while politicians have been reluctant to push through tough, but unpopular structural measures.
The new crisis in Greece, where a radical anti-austerity party looks set to win snap elections and possibly undo many economic reforms, would likely remain manageable for the eurozone as a whole, analysts said.
TAKING STOCK: A Taiwanese cookware firm in Vietnam urged customers to assess inventory or place orders early so shipments can reach the US while tariffs are paused Taiwanese businesses in Vietnam are exploring alternatives after the White House imposed a 46 percent import duty on Vietnamese goods, following US President Donald Trump’s announcement of “reciprocal” tariffs on the US’ trading partners. Lo Shih-liang (羅世良), chairman of Brico Industry Co (裕茂工業), a Taiwanese company that manufactures cast iron cookware and stove components in Vietnam, said that more than 40 percent of his business was tied to the US market, describing the constant US policy shifts as an emotional roller coaster. “I work during the day and stay up all night watching the news. I’ve been following US news until 3am
Six years ago, LVMH’s billionaire CEO Bernard Arnault and US President Donald Trump cut the blue ribbon on a factory in rural Texas that would make designer handbags for Louis Vuitton, one of the world’s best-known luxury brands. However, since the high-profile opening, the factory has faced a host of problems limiting production, 11 former Louis Vuitton employees said. The site has consistently ranked among the worst-performing for Louis Vuitton globally, “significantly” underperforming other facilities, said three former Louis Vuitton workers and a senior industry source, who cited internal rankings shared with staff. The plant’s problems — which have not
UNCERTAINTY: Innolux activated a stringent supply chain management mechanism, as it did during the COVID-19 pandemic, to ensure optimal inventory levels for customers Flat-panel display makers AUO Corp (友達) and Innolux Corp (群創) yesterday said that about 12 to 20 percent of their display business is at risk of potential US tariffs and that they would relocate production or shipment destinations to mitigate the levies’ effects. US tariffs would have a direct impact of US$200 million on AUO’s revenue, company chairman Paul Peng (彭雙浪) told reporters on the sidelines of the Touch Taiwan trade show in Taipei yesterday. That would make up about 12 percent of the company’s overall revenue. To cope with the tariff uncertainty, AUO plans to allocate its production to manufacturing facilities in
TARIFF CONCERNS: The chipmaker cited global uncertainty from US tariffs and a weakening economic outlook, but said its Singapore expansion remains on track Vanguard International Semiconductor Corp (世界先進), a foundry service provider specializing in producing power management and display driver chips, yesterday withdrew its full-year revenue projection of moderate growth for this year, as escalating US tariff tensions raised uncertainty and concern about a potential economic recession. The Hsinchu-based chipmaker in February said revenues this year would grow mildly from last year based on improving supply chain inventory levels and market demand. At the time, it also anticipated gradual quarter revenue growth. However, the US’ sweeping tariff policy has upended the industry’s supply chains and weakened economic prospects for the world economy, it said. “Now
RSS