This involves government bond purchases and marks the launch of quantitative easing. 2  BIS central bankers’ speeches  Adding government securities and paper issued by supranational European institutions to the asset purchase programme was a very important step in the monetary easing and economic stimulus policy: the programme will run to September 2016 at least, with a monthly target of € billion for the three programmes as a whole, although government bonds will be the main component of the purchases and of the increase in the Eurosystem balance sheet. The programme is expected to give a significant monetary boost to the economy, keeping inflation in the medium term below, but close to, 2%. The monetary stimulus transmission mechanisms include both the easing of financing conditions for households and firms and, indirectly, the depreciation of the euro. Purchases of public securities will be allocated as follows: 88% to euro area sovereign and national government agency securities, and 12% to supranational institutions and international agencies resident in the euro area. Of the 88% of national government securities, 8 pp will be acquired by the ECB and the remaining 80% by national central banks, according to their capital key in the ECB, with some special rules for national central banks whose government debt markets are so small that these targets cannot be met.
Inevitably, correcting major imbalances comes at a very high cost in terms of employment and welfare, and that is the lesson that we can draw from the Great Expansion that ended in 2008 with the bursting of the real-estate bubble. Imbalances have to be corrected, although obviously not anyhow or at any speed. It has been argued, with a striking image, that if you are on the twenty-fifth floor of a building and wish to descend to street level, it is better to use the lift or the stairs than to jump out of the window, even though that would definitely be the fastest way down. The reforms that have been approved in Spain – in particular the adjustment of public spending and revenues, bank restructuring and labour market reform – have been rigorous, but also prudent, and this has also contributed to the recovery. That is certainly the opinion of our European partners and of the markets. The European Monetary Union originated more than twenty years ago in the Maastricht Treaty, and became a reality in the markets more than fifteen years back. In those days, the idea of a Monetary union was capable of mobilising extensive political support, but with time, and the crisis, this has been somewhat eroded. The Monetary Union alters economic policy priorities and their relative importance and changes the way in which economic pressures are relieved. It is an economic construct, but also a political one, and cannot survive without political support.