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ECB’s QE plan is widening gap between rich and poor, but it has no choice

The European Central Bank is set to announce whether it wants to extend its quantitative easing programme in the eurozone this Thursday. Andreas Utermann, global chief investment officer at Allianz Global Investors, is confident that the ECB will do what is expected and the market will get the liquidity it wants.

“The European Central Bank’s plan, although they might not admit it, is to keep the euro cheap,” he said at the asset manager’s Market Outlook 2016 roundtable. “The tap of liquidity is turned on and it is not getting turned off.”

The ECB launched its bond-buying programme in January, pledging to splash out about €60bn a month from March 2015 until September 2016, hoping to rocket-launch inflation from its near-zero doldrums to a sparkling two per cent.

But growth has not picked up as quickly as some hoped and there have been hints from the central bank that they may extend the programme. ECB president Mario Draghi recently said that the central bank will “do what we must” to return inflation to its two per cent target “as quickly as possible” – a strong hint of further action.

But all this easy money comes at a price.

“Noone is writing about the social impact of quantitative easing,” said Andreas. “It widens the gap between rich and poor. But noone is addressing it due to lack of other options.”

In the US, former Republican presidential candidate Mitt Romney has blamed QE for rising inequality as it “held down interest rates” and “caused the stock market to rise”.

Here in the UK, pensions minister Ros Altmann has complained that the bond-buying programme has resulted in a huge tax increase on pensions – with pensioners relying on interest income – and a tax cut for banks, borrowers and the wealthy.

And Bank of England research back in 2012 said the policy had boosted asset prices and made the rich richer.

But as Andreas says, what is the other option? Answers on a postcard please, or even better, email info@hotcommodity.co.uk with your views.