Sylvester Eijffinger: "ECB asset purchase programme failed"

The ECB's bond-buying programme has not led to higher economic growth in the Eurozone or higher inflation, but it has led to an increase in bond and share prices. As a result, the central bank's stimulus programme has yielded little for the real economy on balance, but it has had a major effect on the financial economy. This is what Sylvester Eijffinger, professor of financial economics, says in an interview at Tilburg University.

According to him, the parties that buy government bonds are particularly affected by this, because the prices of the bonds are distorted by a capital market interest rate that has been artificially distorted by the ECB. Now that the central bank has announced that it will gradually taper its bond-buying program, the financial markets must also take into account that bond prices will move back to market prices. And that's a risk, because the prospect of falling prices could dissuade investors from buying bonds now.

ECB stimulus programme superfluous

According to Eijffinger, the ECB should never have started this stimulus program, because the economy was already recovering and the bond purchases did not have the desired effect. He notes that Trump's election at the end of last year did much more for the stock market than the entire bond-buying program.

Worst of all, the ECB has exceeded its mandate because it has entered the realm of monetary financing of government deficits by buying government bonds. This is strictly forbidden by the Maastricht Treaty. In doing so, the central bank has undermined its own credibility and reputation as an independent central bank, according to the Tilburg University professor.

No rush

The ECB seems to have little incentive to quickly taper its bond-buying programme, even as the Eurozone economy is experiencing impressive growth figures. According to Eijffinger, this is not surprising, because the central bank also knows that the prices of bonds and shares will take a big hit down when it ends the stimulus program. No one wants to go through that, including the central bank itself. After all, it has a few thousand billion in bonds on its balance sheet, which will also fall in value when the purchase program is stopped and when interest rates are raised.