http://www.economist.com/news/finance-and-economics/21640371-policy-will-help-less-so-other-big-economies-better-late
Recently, there has been relatively low demand and falling prices in Europe causing "lowflation". The European Central Bank has tried many things to combat this deflation and low demand, including offering negative interests rates which also did not work. Months had gone by, and the ECB had decided to engage in quantitative easing. They plan on spending roughly 60 billions pounds, or $70 billion, for over two years to flood the money supply. The ECB has hopes that quantitative easing will help their recovery from the double-dip recession they have recently experienced. Their two channels in which QE will work is by the "signalling effect" (signalling to markets and firms to bring inflation closer to 2%) and the exchange rate (their hopes to strengthen the exchange rate since the serious weakening of it last spring). I think that by engaging in QE, the Euro zone could gain a little more strength in their economy and get them back on the upside of their current cycle.
5 comments:
I think that quantitative easing is good as it was during the first crisis, but it is also important to note that Europe has made few structural reforms to address the problems that caused the recession to go on so long. I feel that this round of QE is crap because while it is applying bandages to the wound, it's not applying enough relevant pressure for reform and adjustment, which I feel is more important in the long term survival of the currency union.
It seems that the ECB is running out of ideas to fix the economy. I think quantitative easing is worth a try in the Euro Zone. It was very successful for the US.
Strengthen the exchange rate is definitely a huge concern for the Eurozone because all the countries in the EU depend on it. I think QE could help change this however it won't be a quick fix. I have to agree with previous comments in that reform also needs to take place if this is truly going to be fixed and prevented from happening again.
Interesting. First Japan, then the US, now Europe -- quantitative easing seems to be becoming a popular mass economic "fix" button. I just wonder when we will see its failure -- something that would be terrible for everyone. As for making structural reforms in Europe: it's Europe; asking half of a continent separated into many different countries to implement this together has never been easy, and in a time of economic stress may only prove harder.
I think the ECB's move to do quantitative easing is a wise move in this time of economic help in Europe. Many countries are in need of economic assistance especially in the southern European countries like Italy, Spain, Portugal and Greece. Also, all the nations that are in the EU cannot keep looking to Germany for aide because unfortunately Germany does not have an infinite supply of money. Also, quantitative easing has played a pivotal role in bringing other hurting economies out of recessions like Calvin said earlier. It will be interesting to see how this plays out over the year.
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