In graphics: QE in the euro zone

Posted: January 20, 2015 in economy
Tags: , ,

THE European Central Bank is poised to take a momentous decision when its governing council meets in Frankfurt this Thursday. The ECB is expected to embark upon a big programme of quantitative easing, the creation of money to buy financial assets. The economic case for QE is strong. The recovery since the double-dip recession between late 2011 and early 2013 has been weak and faltering, while inflation has tumbled, with consumer prices actually falling in the year to December. The ECB has sought to combat “lowflation” through a variety of means, including charging banks that leave money on deposit with it through negative rates. But what it has not done is what other central banks have tried, which is to carry out a big QE programme, which would boost its balance-sheet, injecting money into the economy and stimulating activity.

The ECB’s decision is not just momentous but controversial because it will involve the purchase of sovereign bonds. The central bank has already been carrying out a variant of QE by buying private financial assets, mainly covered bonds, a particularly safe form of debt issued by banks. But if the ECB is to buy in bulk—a programme of €500 billion ($580 billion) is expected—it will have to buy sovereign bonds because they are much the biggest market. That will allow the ECB to intervene without distorting things, at least for bigger …

via Economic Crisis


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