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

19/05/2014

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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