EUROPEAN Central Bank chief Mario Draghi fired off a €60 billion-a-month (£46bn) quantitative easing programme yesterday in a bid to save the ailing eurozone, but British business leaders warned it may be “too little, too late”.
The bond-buying schedule was 20 per cent larger than leaked reports had suggested and is initially in place until September 2016, suggesting that almost €1.1 trillion will be pumped into the economies of the 19 member states, starting in March.
But there were a number of caveats to the planned purchases and it comes as the eurozone is facing a spiral of low growth and deflation.
John Longworth, director general of the British Chambers of Commerce, said: “The ECB has to act to prevent the eurozone from falling into an even more dangerous situation, but the proposed QE programme may be too little too late, given the size of the challenge.
“The impact of eurozone QE is heavily dependent on the money reaching businesses rather than flowing to, and through, bank balance sheets via government bonds. QE must improve conditions in the financial system and increase the availability of credit to private sector businesses in order to work.”
Longworth said the health of the European economy had a clear impact on the prosperity of the UK, and British businesses were “watching with concern”, especially as to possible impacts on the pound.
He added: “The ECB’s QE programme is unlikely to solve the fundamental challenges facing the eurozone, which needs sweeping structural changes to return to health. UK businesses will continue to trade with Europe – but only a broad-based recovery in the eurozone would enable them to achieve their export ambitions in continental markets.”
CBI director-general John Cridland said the cash injection would give the eurozone a much-needed boost, which should also have a positive effect in the UK which is being held back by its flagging trade partners across the Channel.
But he said: “To gain maximum effect, this action must go hand-in-hand with structural reform. France needs to work with the business community to modernise its labour rules and Germany should invest more in infrastructure.”
And former Bank of England policymaker Andrew Sentance pointed out that Draghi’s “big bazooka” actually lacked firepower compared with the money-printing programme that helped rescue the UK from depression following the financial crisis.
He tweeted the ECB’s €60bn a month is equivalent to about 7 per cent of eurozone GDP, while the UK’s 2009 QE of £25bn a month was worth 20 per cent of its output, or three times as powerful.