Mr. Sebastian Barnes:

Quantitative easing is a very relevant issue. However, with quantitative easing central banks are essentially in unknown territory and as economists we are very uncertain about how and whether it works. Before we get there, the ECB should use its existing policy space to cut rates from their current levels. I do not think this will make a huge difference, but it will help. It would particularly help banks that are having to lend at the main re-financing rate of the ECB, not in the market, particularly in peripheral countries. For that reason, rather than for the overall reduction, this would be useful.

At the same time, a key problem in Europe is that even if they cut the rates, the monetary transmission mechanism is basically broken. Therefore, we see massive spreads to real economy lending and difficult credit conditions in many countries, including Ireland. The ECB, through its operations, has done a lot already to help in that regard, but it has not gone far enough. The ECB needs to look at ways of helping credit for small businesses and a range of other measures that one might think would have a quantitative easing aspect but which are really aimed at trying to get monetary transmission working again. In this respect, a key message is that the ECB needs to follow its mandate more carefully.

There is discussion with the US regarding a joint jobs growth and inflation mandate, but in Europe core inflation is 1%. It has been 1% for a long time and predictably it will remain at 1% unless they do something about it. I believe it is not about asking the ECB to do anything. It does not need to change the mandate, but it needs to take the actions required to meet its existing mandate.