article link : http://www.bbc.com/news/business-30933515
President Mario Draghi of the European Central Bank has declared that the ECB plans to implement quantitative easing in the Eurozone economy. The ECB will pump approximately 1.1 trillion Euros into the hurting European economy. The ECB will spend 60 billion euros on bank bonds each month until September of 2016. Quantitative easing in theory will increase the supply of money which will keep interest rates low and encourage people to borrow money. The borrowing of money will hopefully enable people to spend more money which will allow the economy to grow. The ECB states that the interest rates will be maintained at 0.05%. This low interest rate will encourage people and businesses to borrow from financial institutions, meaning that these people have more money to spend and pump into the economy. Many economists in Europe believe that the quantitative easing plan has be prolonged far too long and that finally implementing this plan will help bring the European economy out of an economic slump. Despite the amount of economic issues in Europe, it will be interesting to see how this plan will affect the European economy and its financial sectors in the future.
2 comments:
Adding Quantitative Easing (QE) might just be the right move for the EU. As evident, they can't really make interest rates any lower than they already are, so giving money supply that extra push can help restore their economy. In 2008, the US introduced QE and stopped in 2014 after the US economy has shown major improvements in the labor markets and and the broader economy has been showing strength too. All the credit can't be given to QE, but it's safe to say that it played a major role. I'm an advocate of boosting money supply and this is a good move by the EU.
Given how low interest rates are in the Eurozone (effectively 0%), and the fact that they are still dealing with a number of problems, this is probably a good decision. The central bank, in this situation, needs a different type of tool to help boost growth.
In addition, the Eurozone is in danger of dealing with deflation, which would be a serious problem. As a result, QE would provide a good boost to money supply and help meet the bank's inflation target. It should, hopefully, work out well.
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