Can quantitative easing help rescue the Eurozone?

Despite the EU's 'no bail-out' rule, the ECB looks increasingly likely to introduce quantitative easing in the Eurozone. But with Europe's real crisis coming from the east, will it do any good?

In a widely trailed move, the European Central Bank (ECB) last week cut the two-week refinancing rate by 0.5% to 1.5%, but that was the bare minimum in the face of a marked deterioration in economic conditions around the region. We believe that the argument for cutting by 1.0% point, down to 1.0% is strong and would have provided a ceiling of 1% for overnight rates - although in practice the overnight rate would be effectively zero.

Over the past few months the ECB has provided substantial excess liquidity to the money markets in order to push the overnight rate below the official interest rate and has expanded its balance sheet by an estimated €600bn in the process. It is expected that the ECB will pursue this overly timid approach which has, historically, resulted in a monthly pause between each phase in monetary easing. On that schedule the ECB will reach its inevitable destination in May. Once that happens, the ECB will embark upon the same quantitative easing as is now happening in the UK and is being shuffled towards in the USA.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.