What is left in the ECB’s “tool box�
Mario Draghi has often declared that the ECB still has many measures at its disposal to stimulate the euro-zone economy if that turned out to be necessary. But what are these stimulation measures that remain at the ECB’s disposal? Resuming quantitative easing will not push down long-term interest rates any more (there is a liquidity trap at the interest rate level already reached); It is difficult, by lowering short-term interest rates or by expanding liquidity, to have an impact on euro-zone real estate prices (which are already rapidly rising) or credit spreads (which are already tight); As capital outflows from the euro zone are already massive, it is difficult to weaken the euro's exchange rate anymore ; Helicopter money is simply quantitative easing without a subsequent reduction in the size of the central bank’s balance sheet; Eventually, only two possibilities then remain: the ECB buys equities, the only asset that keeps high risk premia, and the ECB calls for more expansionary fiscal policies that it would accompany by quantitative easing.