Orphan-who Is Advocating Quantitative Easing At The ECB?

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Orphanides, Athanasios Orphanides, ECB governing council member, and current governor of Cyprus’s central bank. So the 16 country euro bloc is now being run from Cyprus. Ben Sils has the story:

A former Federal Reserve economist who made a name for himself telling his superiors they were wrong is now taking on European Central Bank President Jean-Claude Trichet.

Athanasios Orphanides, the governor of Cyprus’s central bank, was the first ECB official to argue in favor of zero interest rates, challenging Trichet’s position that cutting them so low would have “drawbacks” and should be avoided. Now, investors and economists are betting Orphanides, 46, is winning the argument as the euro region suffers its worst recession since World War II.

The ECB “can’t stand on the sidelines and use some weird voodoo economics,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London. “Over time, the power of the right argument tends to win out over the wrong.”

At least seven members of the ECB’s 22-member Governing Council have lined up behind Trichet as they struggle to agree on new tools that would be needed with zero rates. Still, some have started to warm to the idea of deploying all the ECB’s rate ammunition and turning to unconventional methods, suggesting Orphanides may be securing support.

Bond markets expect Orphanides to prevail: Yields on two-year German bunds have fallen to their lowest level since at least 1990. All 55 economists surveyed by Bloomberg News predict the ECB will cut its main rate by a half-point to a record level of 1.5 percent on March 5.

Of course, the fact that Ben and I shared a very congenial cup of coffee last month in my favourite bar in Barcelona is entirely coincidental to all of this :).

This entry was posted in A Fistful Of Euros, Economics and demography by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

2 thoughts on “Orphan-who Is Advocating Quantitative Easing At The ECB?”

  1. ZIRP should have been a priority and would have eased lending and credit. Calling this “Voodoo economics” misses the point that in a race with deflation you have to act, and act fast.

    Dee Illuminati saw this mistake and wonders how much civil unrest will accrue from it? As a saver and not a gambler, I take a beating when rates go to zero. But it is not a zero sum game when you consider macroeconomics. As an Austrian by nature, seeing conservatism as it’s own reward I nonetheless was amazed that the ECB did not act sooner and more decisively to ease lending.

    http://online.wsj.com/article/SB123608825904918557.html?mod=googlenews_wsj

    I think that economists will look back on the feet dragging of the ECB in going to ZIRP as a classic mistake studied in MBA courses globally.

    I also now tend to gravitate to the argument that zombie banks are also a mistake and that along with ZIRP that nationalization might be required.

    But ECB dragging on ZIRP was a classic blunder.

  2. Am I right in understanding quantitative easing to mean that the ECB would buy bonds with money created for that purpose? If so, whose bonds?

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