What can turn the decision of the European Central Bank to extend the current program of quantitative easing in 2018? What will happen to the markets? And with the euro?
An important question: why do you think about this hypothetical situation in your head? It is rumored that several reliable sources communicated on Tuesday with Reuters on the subject of alleged disagreements about when monetary stimulation will stop.
The governing board will meet in October to discuss a future quantitative easing program. Stimulation has remained a hot topic for discussion for a long time, given the fact that the block has experienced strong growth in the economy and inflation in recent months.
However, the fact that the economic recovery is going smoothly does not mean that this situation is repeated in every aspect of it. The euro, for example, is currently extremely strong against its main competitors, such as the US dollar or the British pound. Because of this, exports become more complicated, the settlement for which is carried out in euros.
The export situation is extremely clear and it helps to understand the internal division of views of the ECB. Wealthy countries, led by Germany, the first economy in the EU and a recognized exporting country, are ready to reduce the Central Bank’s program to buy bonds by 2.3 trillion euros. A less well-off, such as Italy or Greece, will speak out against this decision.
October 26 – the key date at the moment for European traders. If lawmakers are unable to come to any specific solution and given the fact that Mario Draghi is an ardent supporter of the ECB’s incentive program, the decision on the “final date” of the quantitative easing program is postponed to the future. Perhaps in December 2017, perhaps in the middle of 2018. More precisely, it is impossible to say.
What are the scenarios? Instead of determining the exact date of the end of the quantitative easing program, lawmakers may decide to reduce the amount of incentives. This may take the form of reducing the volume of purchases of bonds or extend the time frame for such purchases from monthly to quarterly, for example.
And what about the euro? If the decision is postponed, the euro will most likely continue to strengthen in the absence of any control.