The European Central Bank: Unpalatable choices

Posted: January 3, 2014 in economy
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Europe’s Tea Parties

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The European Central Bank


Keeping deflation at bay may involve controversial new policies this year

SINCE the financial crisis the European Central Bank (ECB) has ploughed a solitary course, reflecting its unique status as a monetary authority without a state. While other big central banks, notably America’s Federal Reserve, adopted quantitative easing—buying government bonds by creating money—to stimulate recovery, the ECB relied mainly on lowering interest rates and providing unlimited liquidity to banks on longer terms and against worse collateral. But as the Fed phases out its asset-buying programme in 2014, it may be the ECB’s turn to become unorthodox.
Under Mario Draghi the ECB has taken bold steps. Two years ago it provided banks with €1 trillion ($1.3 trillion) of cheap three-year variable-rate loans to avert a funding crisis. In September 2012 it countered euro break-up fears by pledging, if necessary, to buy unlimited amounts of government bonds for countries besieged by the …

via Economic Crisis


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