It was an unusually newsworthy day in Davos, at the annual Alpine jamboree for the global elite, as the European Central Bank’s historic commitment to purchase more than €1 trillion in assets (including, controversially, government bonds) pushed euro zone monetary policy into uncharted territory.
Convention dictates that bold pledges to blow up the size of a central bank’s balance sheet via quantitative easing (QE) are now referred to as a “big bazooka.” ECB president Mario Draghi unveiled his new artillery in an era-defining announcement from Frankfurt, at the same time as German chancellor Angela Merkel addressed the World Economic Forum in Davos. The architect of the euro zone’s first true experiment with easy money was thus pitted against the bloc’s steadfast defender of thrift and fiscal austerity.
The hordes of journalists buzzing about the conference hall in Davos were furiously typing, tweeting, and live-blogging the clash. Merkel herself avoided direct criticism of the ECB, but dubbed QE a “smokescreen” that obscures how uncompetitive certain companies and countries remain. Only structural reforms by national governments will produce the growth and jobs that the euro zone needs, she argued, and the artificial boost provided by QE provides a limited window of time for them to do it.
Legendary investor George Soros lauded the ECB for “a very powerful set of measures” at a dinner gathering, but said he feared that an “exclusive reliance on monetary policy will increase the inequality between the rich and poor.” In a similar vein, former US treasury secretary Larry Summers said QE, by itself, was “no panacea.”
Raymond Nolte, chief investment officer of hedge fund group SkyBridge Capital, called QE ”a painkiller for the real problems” in the euro zone. To him, structural reform is “the political way to say ‘kick the can down the road’,” he tells Quartz.
Coen van Oostrom, CEO of Dutch commercial property developer OVG, acknowledged that the ECB’s move will boost asset prices, including those of his company’s portfolio. That’s obviously welcome, but “we don’t need more liquidity,” he tells Quartz. The central bank-fueled run-up in asset prices is starting to feel a bit like 2005, a bubbly time that of course was the precursor to the crash of 2008.
Not all the corporate executives in attendance found reason to fixate on Draghi’s announcement. Chatting casually while standing in line for coffee, a mining company CEO told Quartz that unless euro zone QE “makes gold do something,” it’s not really on his radar. The price of gold in fact gained on the day, but investment time horizons in his industry are so long that the day-to-day wiggles in asset prices that follow central bank moves aren’t a major factor in his thinking.
Of course, this being Davos, why limit yourself to seeing what corporate or political leaders think? Quartz cornered the musician Peter Gabriel in a corridor, chatting about his work on human rights, the state of the music industry, and the economic future of Europe. Although vague on the merits of QE specifically, the former Genesis frontman offered his opinion that “the euro zone is worth saving.”
Draghi, there’s your cue.