Many credit European Central Bank (ECB) President Mario Draghi with stabilising Europe's financial markets. However, for this he has had to dig deep into the ECB's tool box, leading some to criticise the unconventional measures the has taken or announced. On Monday Draghi meets the EP's economic committee to discuss what it is all about. Follow the debate live on our website from 15.00 CET.
SMP, OMT, TLTROs: there is an alphabet soup of different monetary policy measures that have been devised in the last couple of years by the ECB with two goals in mind: to calm the financial markets and to get the banks in the euro area to start lending again. This would boost economic activity, growth and employment.
With the key interest rate at 0.05%, banks are already getting money from the ECB for nearly nothing. However, with households and companies heavily indebted, banks are still reluctant to pass this money on to the real economy. This is why the ECB has resorted to so-called unconventional measures that it hopes will lower the risk of extending loans in such uncertain times. Those measures will be the subject of today’s debate with MEPs.
One of the more controversial measures already announced but not yet implemented would allow the ECB to buy government bonds on the financial markets. This has calmed the latter: it means there will always be a buyer for bonds, so interest rates for bonds - the measure of how risky people perceive them to be - have come down. ECB hopes that this will spur lending.
Yet some people see that as a promise of cheap money for governments that don’t want to engage in painful structural reforms. They say that by buying government bonds the ECB would be doing fiscal and not monetary policy, which is contrary to the EU treaties.
This is not just a theoretical debate: the European Court of Justice is set to rule in the coming months on the conformity of such measures with the treaties. It has been asked to do so by the German constitutional court. Given that these exact measures have calmed the markets, the decision is awaited with some unease.
Draghi will also appear before the economic committee in his capacity as the president of the European Systemic Risk Board. On 4 November, the ECB’s single banking supervision mechanism became operational. The ECB directly supervises the euro zone's 120 largest banks.