Euro-QE: a conservative sop

Submitted by Matthew on 28 January, 2015 - 10:17 Author: Colin Foster

The European Central Bank’s Quantitative Easing (QE) plan, announced on 22 January 2015, was a bit more energetic than expected.

The good thing about it is that it confirms that EU leaders know their current plans aren’t working, and therefore are more susceptible into being pushed for change. Whether QE as such will help working-class people across Europe is another matter.

The plan is shaped so as to exclude for a while buying Greek government bonds. It includes a rule that the ECB won’t own more than 33 per cent of the debt from a single issuer. That keeps Greece out at least until it has made a July repayment on Greek IOUs which the central bank already owns.

There’s more. QE means that the central bank, which can “print” money, physically or electronically, at will, supplies commercial banks with hard cash by buying up dodgy IOUs (bonds, etc.) which they are holding. There’s a twist to euro-QE in that if the dodgy IOUs go bad, most of the loss will fall on national central banks rather than the ECB.

QE is supposed to “work” in several ways. IOUs of the type the central bank is buying become saleable everywhere, rather than dead matter. The increased price of bonds pushes more big-money purchasing power towards buying shares. Banks with more cash may become more willing to lend, thus “trickling down” credit to a wider range of people.

The ECB’s QE has an additional hope, which has not been much of a factor with QE in the USA and the UK: by pumping in cash it is designed to restart inflation and to reduce the value of the euro relative to other currencies. Mild inflation is helpful for capitalism because it increases people’s propensity to spend rather than hold onto cash and it erodes debts. A reduced value for the euro cheapens eurozone exports in markets outside the eurozone.

Whether the USA’s and the UK’s big QE plans have counted for much in the USA and the UK seeing more recovery of overall economic output than the eurozone, or whether other factors have dominated, no-one really knows.

The effect of QE for which there is some solid evidence is that it helps the rich. The Bank of England officially reported in July 2012 that QE had “boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets”.

Inequality usually narrows a bit in capitalist recessions, because the rich have further to fall; this time, inequality has spiralled in the USA and the UK.

Even in terms of bourgeois economic-management gambits, QE is a conservative option. More radical monetarists propose that the central bank, instead of pumping cash into banks, should instead create new cash to give an equal handout to every resident. Keynesians propose that governments should, in recession, deliberately run deficits to pump up public investment and services.

Truly, however, the labour movement should take the control of the economy out of the hands of the bankers by expropriating the banks and redirecting credit towards the expansion of public services under democratic control.

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