The European Central Bank (ECB) is not going to cut interest rates any further. Instead, the ECB will start to buy low quality assets in order to enhance Europe’s economic growth.
The Financial Times was already reporting this before the meeting: On their meeting on Thursday, the council of the ECB would suggest to buy low quality assets. This was confirmed by the ECB in Mario Draghi’s statement after the council’s meeting.
The ECB will begin with the purchase of low quality assets in October or at least before the middle of this last quarter of the year, says Mario Draghi. The volume of those transactions will be around one billion within the next two years.
The ECB believes, that this is a efficient way to enhance the granting of loans from banks. Those have been decreasing in Europe for years.
Currently, the ECB does only purchase investment grade papers. Now, they are going to buy speculative papers as well which enables them to purchase assets from Greek and Cyprus financial institutions.
Especially German Bundesbank president Weidemann criticises the program because it shifts bank risks to the ECB.
On the other hand, some say that the purchase of newly issued asset banked securities is fine because those are of better quality than ones issued before the financial crisis.
Draghi advices countries to get their structural reforms going. This is especially true for Italy and France. While Italy is just before a recession, France will not maintain the EU debt limits from now until 2016. Germany should spend more to enhance economic growth.
The Euro fell after the announcement to a two-year low against the USD and is now at 1.26 USD being the lowest value since September 2012.