The European Central Bank has deployed a raft of aggressive measures
to boost Europe's economy, but stopped short of the one many economists
insist would do the most to help: large-scale purchases of bonds.
That could change sooner rather than later, analysts say, if inflation remains low.
Purchases
of bonds using newly created money — called quantitative easing — have
been used with some success so far by the U.S. Federal Reserve, the Bank
of England and the Bank of Japan. They can reduce market interest
rates, making it cheaper for consumers and businesses to borrow, helping
growth.
So why not in Europe?
To
begin with, the ECB faces technical and practical challenges that other
major central banks don't have. It has 18 different government bond
markets, raising the question of whose bonds to buy and how many.
Beyond
that, creating new money has long faced resistance in Germany, the
biggest economy in Europe where central bank stimulus measures are
looked upon with suspicion and have a prominent place in public
discussions.
But after Thursday's meeting, things could be shifting.
At
a press conference on Thursday, ECB President Mario Draghi held the
door open to such bond purchases, suggesting Germany has at least
softened its outright resistance. If inflation falls further, analysts
think the ECB could start quantitative easing.
"Are we finished?" he said after the decision. "The answer is no." The
ECB is keen to bring up the inflation rate, which at 0.5 percent is so
low it raises fears the eurozone will fall into outright deflation, a
crippling downward price spiral.
Note EU-Digest:
quantitative easing is the kiss of death for an economy and even though
it creates some relief at first it will eventually come and haunt you,
as the US is experiencing, but not speaking about.
Read more: FRANKFURT, Germany: ECB getting closer to Fed-style stimulus - Business Breaking News - MiamiHerald.co
