MNI EXCLUSIVE: ECB Balance Sheet Could Grow E660B: Mourmouras

By Luke Heighton

     LONDON (MNI) - The European Central Bank's balance sheet will grow by about

E660 billion if a new round of quantitative easing extends until the end of

2021, Bank of Greece Senior Deputy Governor John Mourmouras told MNI Thursday.

     "At E20 billion per month, starting in March 2020 and lasting until

end-2021, the balance sheet would grow by around E660 billion or 30% of the

expansion seen between 2015 and 2018," Mourmouras said in remarks sent to MNI,

after the ECB on Sept. 12 said it would cut its main interest rate by 10 basis

points to -0.5% and relaunch net asset purchases at a rate of E20 billion a

month from November.

     "It is still very soon to question the effectiveness of the new ECB

stimulus package. Clearly, the crucial parameter here will be core inflation and

the evolution of inflation expectations in the short-to-medium term," Mourmouras

said.

     Mario Draghi was "absolutely right to remind governments of their role in

avoiding a potential downturn of their economies."

     "We all have to be innovative, looking outside the box for feasible

solutions towards that direction," he said, noting calls for the creation of a

joint eurozone safe asset, by pooling sovereign bonds from the bloc's different

countries in proportion to their ECB capital keys.

     Eurozone governments have already made sizeable fiscal savings thanks to

lower interest rates resulting from ECB asset purchases, he said.

     "One idea here is that these past savings and the ones that will come from

the new round of QE, could or should be directed to targeted smart public

investment projects, such as research and development, innovation in new

technologies."

     Turning to his home country, Mourmouras called Greek government plans by

newly-elected Prime Minister Kyriakos Mitsotakis for tax cuts and structural

reforms to boost the economy and repair relationships with investors both

"ambitious" and "feasible."

     "The tax relief measures that were immediately taken and the ones to follow

next year, together with a decrease in primary surpluses, will give a new

dynamic to domestic active demand with permanent positive economic growth

effects," Mourmouras said, adding that the new government's decision to fully

lift capital controls signaled a "paradigm shift for the Greek economy."

     "The government has an ambitious but feasible plan, unleashing the force of

the economy's compressed spring," Mourmouras continued. "The challenge now is to

focus on the quality features that will determine the duration and benefits of

this restarting, in the context of the years-long shortage of liquidity and

financing to the real economy and high private debt."

     "Our systematic presence in international capital markets by means of

small, pre-announced issues of long-term government bonds is also warranted," he

said, adding that the prime minister could ask his chief economic advisor for a

list of the "top 10" economic accelerators and monitor their measurable results.

     These accelerators - including the E1.2 billion transferred to the Greek

state under the ECB's Agreement on Net Financial Assets (ANFA) and "Securities

Markets Programme" (SMP), and which is earmarked for investment, offer a buffer

in case of a slowdown.

     "The growth bet can and must be won."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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