The European Central Bank should retool its asset-purchase programme to fund a wave of new infrastructure spending across the continent, according to one of the world’s most powerful bond managers.
Rick Rieder, global chief investment officer of BlackRock’s $1.6tn fixed income business, says the ECB should avoid a “false choice” between continuing on its present course or tapering its existing programme, when it meets to decide monetary policy on Thursday.
The central bank has the opportunity to unleash hundreds of billions of dollars in new economic activity by shifting more of its purchases towards bonds issued by the various national and supranational organisations, such as the European Investment Bank, that fund infrastructure and provide trade finance, Mr Rieder said.
By moving the focus of quantitative easing away from sovereign bonds, the idea would be to do an end-run around the banking system and put money more directly into the economy, at a time when central bankers around the world are keen to hand the baton of stimulus from monetary to fiscal policy.
“The banking system is stuck and central bankers are pushing on a string. You need to change the dialogue, and this could give markets and companies greater confidence that there will be true spending in the economy,” Mr Rieder said.
The ECB already has the ability to buy supranational debt, including bonds issued by the EIB, and such debt so far accounts for €136bn of the €1.2tn purchased under QE.
The idea of directing QE towards infrastructure has previously been touted by figures including Yanis Varoufakis, the former finance minister of Greece, but it raises the question of whether the EIB and other agencies will find enough projects to fund.
Mr Rieder said a “two-way dialogue” was needed, but that the “ECB can act as an instigant” to the EIB and others increasing their balance sheets. As well as infrastructure, funds could be used for trade finance, which is quicker to deploy.
The ECB should promote regional infrastructure spending, trade development and balance-sheet-intensive corporate activities
“The ECB should promote regional infrastructure spending, trade development and balance-sheet-intensive corporate activities such as vendor finance, in a manner that has the potential to help re-rate growth and inflation,” Mr Rieder said.
The effect could be as powerful as the presidential election result in the US, which signalled a more muscular fiscal policy through infrastructure spending under Donald Trump, he said. “The ECB needs to change the dialogue.”
The ECB’s governing council will meet on Thursday to discuss the next stage of its QE programme, which is scheduled to run out in March. The eurozone economy has strengthened enough for the bank to at least consider cutting back on the amount of bonds it buys each month.
Analysts believe the council will be presented with a choice between continuing to buy €80bn of bonds monthly until September, or purchasing €60bn a month until December 2017.
While the central bank has avoided directing its asset purchases towards specific projects, its president Mario Draghi has called on the eurozone’s political leaders to increase investment in the continent’s infrastructure as part of a broader push for politicians to take on more responsibility for boosting growth in the region.
Mr Draghi said in October that leaders should focus their efforts to reform their economies “on actions to raise productivity and improve the business environment, including the provision of an adequate public infrastructure, which are vital to increase investment and boost job creation”.
