The European Central Bank, via its president Mario Draghi, has unleashed a firestorm of cash on the European continent in what is largely seen as a last salvo in an attempt to kickstart its struggling economy.
The cash is intended to get a bond-buying programme, technically known as ‘quantitative easing’, rolling Europe-wide, whereby the ECB will buy government and private-sector bonds worth €60 billion a month until at least September 2016, and possibly further. The total value of such scheme is close to the almost unreal figure of €1.1 trillion.
In theory, once the ECB buys out the bonds, capital in the banks should become available for lending, which in turn would enable large companies and SMEs to borrow more, thus stimulating jobs and growth. But that is just the theory. The man on the street won’t really see much of a difference one way or the other, as the flow of cash won’t cascade all the way down. Rather, the banks and other financial institutions will handle the big numbers.
The ‘quantitative easing’ issue is a controversial one, and has been met with supporters and detractors alike. Also, its success is far from guaranteed. Similar schemes worked to some degree in the US and the UK, for instance, but not so well in other countries like Japan.
In the Irish case in particular, many fear that the programme comes four or five years too late, and that its effects -if any- won’t be felt for some months to come, possibly into next year.
Mario Draghi confirmed that the quantitative-easing programme will start in March. This is the last weapon in the ECB’s armory, and should it fail, the fallout is anyone’s guess.