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Will ECB spending spree pay off?

Monday, March 09, 2015 - 02:14

Most euro zone government bond yields fell as the ECBs sovereign debt purchase programme got underway, with only fears about Greece's funding spoiling the launch party. As Amy Pollock reports the bank hopes to boost inflation and growth by buying 60 billion euros of bonds every month.

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The European Central Bank is at last putting its money where its mouth is. It's started buying government bonds at a rate of 60 billion euros a month. Investors have been waiting for the stimulus since bank President Mario Draghi promised to do "whatever it takes" back in the summer of 2012. The relief showed as bond yields fell across the region, Germany's as low as 0.36 percent.. But concerns remain over how effective the huge influx of money will be. Admiral Markets' Darren Sinden. (SOUNDBITE) (English) DARREN SINDEN, MARKET COMMENTATOR, ADMIRAL MARKETS, SAYING: "The key really, to my mind, for the ECB will be to try to get inflation back into a positive read and a sustainable positive read...and also to see if perhaps the money that is being pumped into the economy starts to reach targets in the real economy, small and medium-sized business who perhaps haven't found it so easy to borrow money." Recent positive economic data from the euro zone has prompted some to ask whether the QE boost is still needed. But most believe Europe isn't close to the home straight yet. (SOUNDBITE) (English) DARREN SINDEN, MARKET COMMENTATOR, ADMIRAL MARKETS, SAYING: "Yes, we've seen the occasional positive economic surprise, but we've seen almost as many disappointments as far as the euro zone's concerned. Germany obviously is the engine of euro zone growth, but even there, the figures have been mixed and at times contradictory." As if on cue came Germany's export data - down 2.1 percent in January, the biggest fall in five months. A cheaper euro and low oil prices will help. But Europe's largest economy didn't want QE. Robert Halver is from Baader Bank (SOUNDBITE) (German) CAPITAL MARKET ANALYST FROM BAADER BANK, ROBERT HALVER, SAYING: "If markets are flooded with even more money and interest rates go down even further, it does not automatically mean that banks give loans. The problem is: large parts of the euro zone are not competitive. So why should a bank give a loan if it knows the company or individual is not solvent? Only once competitiveness and reforms are guaranteed can an economy work." One euro zone member that was in favour but won't be benefitting is Greece. The ECB won't buy any Greek government bonds until a political agreement over its bailout is approved. That sent Greek bond yields close to 9.6 percent ahead of a euro zone finance ministers meeting. How that pans out could be key to the success of the QE programme.

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Will ECB spending spree pay off?

Monday, March 09, 2015 - 02:14