Last Thursday, the European Central Bank (ECB) announced that it was ending the asset purchase program, better known as QE (quantitative expansion), after four years since its entry into force. These are some of the reflections that the announcement provokes with the perspective provided by the passage of time and what is seen in the United States.
First, it is undoubtedly good news, given that the economy of the euro zone does not require this stimulus any longer. In these four years, the ECB has bought debt for an amount of 2.6 trillion euros (23% of GDP), what has been an effective instrument to overcome the risk of deflation in the euro zone. Second, the announcement has gone completely unnoticed by the markets, despite marking a milestone in the process of monetary normalization. A merit attributable to the good communication of the ECB, which has been carefully preparing the ground in the last year. And, third, although we are a little closer to recovering a situation of normalization in monetary matters, there is still a long way to go.
The completion of the QE is only a first step in a process that will be prolonged. And it is that the ECB would still dismantle a battery of unconventional measures deployed during the crisis that includes, in particular, the policy of provision of liquidity (long term) to the financial system, the increase in interest rates (now negative) and the very reduction of the (extraordinary) size of your balance.
To give an idea of how much remains ahead, some data. In terms of liquidity, the eurozone banking system flocked to the last long-term auctions, requesting funds of more than 700,000 million euros (which should be returned between 2020 and 2021, unless the ECB extends the auctions, which seems very likely). Regarding the types, remember that the ECB reduced them below 0% (down to -0.40%). Therefore, there is a long journey to return the types to their "normal" levels.
If the policy of the Federal Reserve of the United States can serve as a reference of how long this process can last, although it can not be extrapolated by the differences between both jurisdictions, we can be talking about four to five years, because the Fed put an end to the QE in October 2014 and in 2019 is expected to reach the maximum cyclical interest rate. If this were the case, the challenge for the ECB will be enormous, because it will surely face the next phases of the monetary normalization process when the economy is slowing down. Let's see how this is handled by the new president of the ECB and the renewed Council.
Sonsoles Castillo, BBVA Research.