QE for infrastructure investment could be ECB’s alternative to ‘pushing on a string’ – Tom Bowker, Central Banking Journal

Screen Shot 2014-05-19 at 3.34.06 AMTom Bowker, of the Central Banking Journal and centralbanking.comhas written about my proposal that the ECB’s Quantitative Easing program should be aimed at purchasing bonds issued by the European Investment Bank/Fund as part of an Investment-led Recovery Program for the Eurozone as a whole. 

Here are some extracts from Tom’s article:

The European Central Bank (ECB) should embark on a programme of quantitative easing (QE) under which it buys debt issued by the European Investment Bank (EIB) and European Investment Fund (EIF) in order to stimulate the European economy, according to a leading expert on Europe’s economic crisis.

Yanis Varoufakis, professor of economics at the University of Athens in Greece, told the Economist magazine’s Bellwether Europe conference in London yesterday that the EIB could act as a conduit through which the ECB could direct lending to the ‘real economy’ – without having to reach the holy grail of reviving Europe’s moribund asset-backed securities (ABS) market.

An EIB programme of investment in infrastructure, Varoufakis argued, “could work in conjunction with QE” if the EIB could issue bonds that the ECB could buy in the secondary market, “if the EIB yields start rising above a certain level”. Alongside that, the European Investment Fund (EIF) – “the EIB’s side-kick”, as Varoufakis characterises it – could “operate as a venture capital fund for start-ups throughout the eurozone, with implicit QE backing from the ECB”.

In her speech, [Sharon] Bowles [chair of the European Parliament’s economic and monetary affairs committee] appeared to back this kind of approach. Although “nobody has the cash for bountiful all round stimulation – like banks, governments are consolidating”, she said Europe’s authorities “have to work around the situation where we can” – meaning targeted intervention. “The two targets frequently chosen”, said Bowles, “for obvious reasons, are SMEs and long-term investing, which are also the areas where banks and governments are pulling out.”

That type of spending would have to be carefully executed, Bowles warned. “It is abundantly clear that infrastructure spending in the UK is needed,” she said, “but there are other European countries where there has been useless over-building of infrastructure that contributed towards unsustainable economies.”

For the complete article click here.

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  • “But even with annual inflation in the euro zone at just 0.5%—far below the ECB’s target of just under 2%—Mr. Draghi’s comments suggest the ECB remains reluctant to follow suit. Quantitative easing is more complicated in the euro zone than it is in the U.S. and other large economies. The euro zone comprises 18 different countries each with their own government and private debt markets.

    That makes it difficult to channel stimulus where it is needed most without violating ECB rules that prohibit it from financing governments.

    The ECB’s rules against financing governments and German skepticism over quantitative easing complicate government bond purchases. The structure of European financial markets make it hard to buy private assets to stimulate growth. Much of European financing to companies is done through banks as opposed to capital markets, and Europe lacks large pools of asset-backed securities for the ECB to purchase, even if it wanted to.

    “When push comes to shove it’s still very unlikely that they do QE or any asset purchases because the sizes are too small or it’s too controversial or it’s too hard to implement,” Mr. Brzeski said.”

    • How could he get it if he self-declares as a europhile?

      To be a europhile means you are a declared citizen of the EUSSR, an oppressed 4th Reich slave worker and one who is not allowed to question elite decisions made in Berlin or Frankfurt.

      I would certainly have to say that WM is precisely the type citizen that doesn’t get it and that people like him are actually the enemies of european people.

      Not to mention the incredible nonsense he is spewing on Greek newspaper by supporting the exact Schauble Grexit position of 2 years ago. How come all Germans speak variations of the same nonsense non-stop? Is it in the water you drink or what?


    • And Draghi says he continues Bundesbank traditions. But the Euro is not a cent better than the Lira!