ECB primes markets for imminent QE

FRANKFURT, Jan 14 (AFP) : The European Central Bank on Wednesday prepared financial markets for an imminent programme of sovereign bond purchases, with president Mario Draghi saying the bank had few other options at its disposal to counter the risk of deflation.
A day after ECB executive board member Benoit Coeure had said that the central bank's governing council was in a position to announce such a programme at its first policy meeting of the year next week, Draghi upped the ante still further.
"All members of the ECB's governing council are determined to fulfil our mandate," he told the weekly newspaper Die Zeit, when asked about his plans to launch a controversial programme of large-scale buying of government bonds known as quantitative easing or "QE".
The central bank's mandate is to keep price inflation at just under 2 per cent, but it fell to a negative 0.2 per cent in December, raising fears the eurozone could fall into a cycle of damaging deflation were falling prices lead to job losses and lower output.
"Of course there are differences about how we can do that. But it's not as if we have an endless amount of possibilities," he said.
The comments will fuel speculation that the ECB's governing council will announce plans for a programme of some form of QE at its meeting on January 22.
Other central banks around the world have used QE programmes to kick-start their economies.
But there are critics of such a programme in Europe, notably the Bundesbank or German central bank, which believes QE will take away the pressure on governments to reform their economies and is effectively a licence to print money to get them out of debt.
Under QE central banks in effect create money to buy sovereign bonds, and thus government borrowing costs fall, but the objective is for the funds to find their way back into the economy through investment and spending.
Just on Tuesday, ECB executive board member Coeure had said discussions about a QE programme were "very far advanced."
"We had a discussion last week on many of the technical details. We are definitely in a position to make a decision on January 22," when the ECB's policy-setting governing council meets next, Coeure said.
"But that does not mean we will actually make a decision," he added.
A group of euro-sceptics in Germany actually took the ECB to court over an earlier bond-buying programme called Outright Monetary Transactions or OMTs, arguing that such a measure overstepped the central bank's mandate.
In February 2014, Germany's highest court, the Constitutional Court, voiced doubts about the OMT programme and sent the case to the European Court of Justice.
But the ECJ's Advocate General Cruz Villalon found that Wednesday that the OMT programme is "in principle" in line with European treaties.
The ECB, via the micro-blogging social media site Twitter, said Wednesday it "took note" of Villalon's opinion and said the OMT programme was still "ready and available."
The OMT programme was unveiled in August 2012 at the height of the eurozone debt crisis when financial market turmoil looked set to bring down the single currency.