How Draghi got divided ECB to say 'yes' to money-printing

Mon Jan 26, 2015 11:11am EST
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By Paul Taylor

LONDON (Reuters) - When Mario Draghi announced the European Central Bank's trillion-euro scheme to buy government bonds, he acknowledged that in the round of strategies to revive inflation and boost the economy, the bank had just played its last hand.

Asked by reporters what would happen if the plan to purchase 60 billion euros ($67.55 billion) of assets a month for 19 months failed, Draghi answered: "We have Plan A. Period."

    In fact, the money printing scheme known as quantitative easing is already a plan "BBB" in the words of former European Economic and Monetary Affairs Commissioner Olli Rehn, who termed it a "Belated Big Bazooka."

    For more than a year now, economists and central bankers have pressed for dramatic action to halt tumbling inflation, sagging price expectations and a stagnating economy.

    But fierce resistance from German politicians and the influential Bundesbank meant Draghi could not move until he had slowly and painstakingly built overwhelming support in the ECB's policy-making governing council for his monetary gamble.

    This report shows how the ECB went from being deeply divided over QE to launching a bolder and more open-ended version than most investors had expected.

It is based on interviews with half a dozen persons involved in the decision. All spoke on condition of anonymity because of the confidentiality of ECB deliberations. Other policymakers have chosen to speak publicly in the aftermath.


European Central Bank (ECB) President Mario Draghi and Vice President Vitor Constancio (L) leave after addressing an ECB news conference in Frankfurt January 22, 2015. REUTERS/Kai Pfaffenbach