Greece and Germany stand to lose out from the European Central Bank’s (ECB) quantitative easing program, according to analysts.
Greece has not been included in the bond-buying scheme, in which the ECB have committed to ploughing around €1.1 trillion ($1.15t) into the Eurozone economy by buying €60 billion-worth of sovereign assets each month until September 2016, Yahoo reported.
Germany opposed the policy prior to its announcement by ECB president Mario Draghi on January 22. Finance Minister Wolfgang Schaeuble previously described QE as “not the solution, rather the cause [of economic woes]”.
On the other hand, experts believe that recovering high-debt economies, including Portugal, Italy, Ireland and Spain, stand to benefit most from the reforms.
Since the ECB launched full-scale QE on Monday, €9.8 billion has already been spent buying government bonds, ECB executive board member Benoit Coeure announced Saturday. “QE is working, there is no doubt it will work,” Coeure said in Paris.
Greece has been excluded from the QE program until bonds purchased by the ECB from failing Greek banks mature this summer.
Jennifer McKeown, senior European economist at independent macroeconomic analysts Capital Economics, says that while Greece could theoretically be included in any further QE program, that depends on how it deals with its current bailout scheme.
“It depends a bit on how negotiations are going and indeed whether Greece is still in the Eurozone. If there’s a third bailout in place and Greece has managed to repay money owed from previous bonds then yes, I think it will [be included in QE],” says McKeown.
Neutral Policy
QE is designed to be a neutral policy which benefits each member equally, since the rate at which bonds are bought varies according to each country’s GDP share.
“The point of QE is that you do it uniformly right across the Eurozone area. The defining feature of QE is that it attempts to be neutral,” says Andrew Lilico, chairman of Europe Economics, an independent economic consultancy firm which advises the European Commission and European Parliament.
However, he highlights one unlikely candidate which doesn’t stand to benefit from the program, the one which resisted the plan in the first place – Germany.
“Germany is the one country which we know formally dissented. I would say that the negative for them is that their policy preference has been overruled,” says Lilico.
“Printing money doesn’t always end well. You are bearing the risk that you lose control of inflation in order to get the gains [of QE].
Germany’s view was the risks weren’t worth the gains. They now bear a little bit of extra risk they didn’t want to bear.”
However, Germany’s outward-looking economic policy means it should benefit from the falling value of the euro. As the currency’s value decreases, Eurozone imports become cheaper for countries outside the single currency, leading to a boost in demand.
QE has already had a substantial effect on the value of the euro, with experts saying the euro could reach parity with the dollar within three months.
High-Debt Economies
“Spain, Italy and other high-debt economies can issue bonds at lower interest rates than previously and decrease interest payments year-on-year. If you’ve got a particularly large debt stock then a lowering of interest rates benefits you more than if you’ve got a low debt cost.”
But although the benefits will be felt by the banking sector in those countries, McKeown says consumers in Spain, Portugal and Italy might not feel the full effects of QE.
“Problems in banking sectors in peripheral economies, like Spain, Portugal and Italy, mean that the reduction in borrowing costs hasn’t fed through to borrowing costs faced by households and firms.”
