Morning Must-Read: Barry Eichengreen: The ECB Tries Again

Barry Eichengreen: The ECB Tries Again: “In June the European Central Bank announced a series of new steps to counter deflation….

…Rather than bemoaning the failure of President Draghi & Co. to move earlier, it is more productive at this stage to ask: are the central bank’s measures now up to the task?… The ECB’s conventional measures, reducing its benchmark interest rate from 0.25 to 0.15 per cent and charging commercial banks 0.1 per cent on the money they deposit with the central bank, will make little difference…. Conventional monetary policy has run its course…. Thus, if policy is going to make a difference, policy will have to be unconventional. Here the ECB unveiled… one and a half… initiatives in June… ‘Targeted Long-Term Refinancing Operation’… €400 billion, or some US$550 billion, cumulatively over four months. Recall that the Federal Reserve, under QE3, had been injecting $85 billion a month into U.S. financial markets before starting to taper in December. This makes TLTRO look like a substantial commitment…. The additional ‘half an initiative’ announced in June was that the ECB would study the possibility of security purchases…. These cautions should not be taken as a council of despair. If ECB officials conclude that the impact of TLTRO and securities purchase will be marginal, they should not give up hope; rather, they should strive to do more…