Executive Summary
As widely anticipated, the European Central Bank (ECB) today announced a program of sovereign bond purchases, though the details of the program largely exceeded market expectations. It made the terms of its Targeted Long-Term Refinancing Operations (TLTRO) program more attractive to banks, which should help to support bank lending going forward. However, the stipulation of limited risk sharing among countries will reduce the effectiveness of the overall program somewhat. In general, we are mildly encouraged by the ECB’s announcement, but caution that it is not a “silver bullet.” That is, economic growth in the Eurozone likely will remain sluggish for the foreseeable future, and inflation should remain well below the ECB’s target of “below, but close to, 2 percent over the medium term.” The ECB may very well be purchasing bonds well beyond its intended time frame of September 2016.
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