Patrick honohan

QE and the euro area recovery Patrick Honohan Slides for GIC Meeting, Helsinki, June 2016

Outline • Central Bank easing in the euro area – macro background • Techniques employed before QE • Nature and impact of the 2015 QE • Differential recovery of EA member states • What else could be done by ECB if needed?

Euro area GDP growth and sentiment indicators

Source: ECB

Source:Â ECB

Source: ECB, March 2016

2006Sep 2007Feb 2007Jul 2007Dec 2008May 2008Oct 2009Mar 2009Aug 2010Jan 2010Jun 2010Nov 2011Apr 2011Sep 2012Feb 2012Jul 2012Dec 2013May 2013Oct 2014Mar 2014Aug 2015Jan 2015Jun 2015Nov

Eonia rate (overnight money market) 5 4.5 4 3.5 3 % 2.5 2 1.5 1 0.5 0 ‐0.5

Source: ECB

Long‐term government bond yields: Selected euro area countries 1994‐2016 16 14 12 10

Finland

6

France

4

Ireland

0 1994Feb 1995Apr 1996Jun 1997Aug 1998Oct 1999Dec 2001Feb 2002Apr 2003Jun 2004Aug 2005Oct 2006Dec 2008Feb 2009Apr 2010Jun 2011Aug 2012Oct 2013Dec 2015Feb 2016Apr

Spain

8

2

Source: ECB

Germany

Italy Portugal

2007Jul 2007Dec 2008May 2008Oct 2009Mar 2009Aug 2010Jan 2010Jun 2010Nov 2011Apr 2011Sep 2012Feb 2012Jul 2012Dec 2013May 2013Oct 2014Mar 2014Aug 2015Jan 2015Jun 2015Nov 2016Apr

Long‐term government bond yields: Selected euro area countries 2007‐2016 8

7

6

5

1

0

Source: ECB

Spain

4 Italy

3 France

2 Finland

Germany

GDP projections vs outcome Euro area crisis countries

115 110 105 100 95 90 85 80 2010

2011

2012

2013

2014

2015

Greece prog

Ireland prog

Portugal prog

Cyprus prog

Greece latest

Ireland latest

Portugal latest

Cyprus latest

Source: based on IMF reports to 2014

GDP projections vs outcome Euro area crisis countries

115 110 105 100 95 90 85 80 2010 Greece prog Source: based on IMF reports to 2014

2011

2012

Ireland prog

2013 Greece latest

2014

2015

Ireland latest

GDP projections vs outcome Euro area crisis countries

115 110 105 100 95 90 85 80 2010 Source: based on IMF reports to 2014

2011

2012

2013

2014

Ireland prog

Portugal prog

Ireland latest

Portugal latest

2015

Percentage of adult population employed: Selected EU countries 75 70 65

Euro Area 19

60

Germany Finland

55

Ireland

50

Greece 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1 2010Q4 2011Q3 2012Q2 2013Q1 2013Q4 2014Q3 2015Q2

45

Source: Eurostat

Percentage of adult population employed: Selected EU countries 75 70 65

Euro Area 19 US

60

Germany

55

Finland Ireland

50

Greece 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1 2010Q4 2011Q3 2012Q2 2013Q1 2013Q4 2014Q3 2015Q2

45

Source: Eurostat

0

‐5 Peak to trough ‐10

Peak to end‐2015

‐15

‐20

Fall in % employed from 2007 peak European countries, percentage points Source: Eurostat

‐25

Source: Eurostat

130

Numbers at work index 2001=100: Selected EU countries

125 120

EA

115

Germany

110

Ireland

105

Greece

100

Spain Italy

95

Portugal

90

Finland

85

UK 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

80