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Will ECB Quantitative Easing Prevent Eurozone recession?


Will ECB Quantitative Easing Prevent Eurozone recession?

European Commission - Brussels

European Flags In Brussels at Commission Headquarters

It is beginning to look like an increasing number of European economies are already caught in the grips of a recession or are poised to enter one. This appears to be the main driver for all the talk about an expected European Central Bank (ECB) decision to engage in quantitative easing (QE) to stimulate the eurozone economy and prevent deflationary threats. The unfolding Greek drama shouldn’t be discounted also. After all, the Greek debacle highlights the key fundamental flaw of the euro unified currency: the currency is unified but fiscal policies are localized.

Indeed, currency traders are already letting the expected announcement factor into their forex plays and this has already led to pain. The Switzerland National Bank took the Swiss Franc off its temporary euro peg and the resulting CHF surge crushed forex speculators betting on a weaker CHF due to the suspected impending quantitative easing by the ECB. Besides this side drama, the bigger question to ponder is whether the QE envisioned by the ECB would be enough. Printing up euros to buy bonds might seem like a great idea in theory but when it comes to figuring out actual numbers needed to make a positive impact on the ailing Eurozone economy, things get a lot more murkier. According to the broad concensus of market analysts, the ECB will focus on a 550 billion euro QE. This might or might not be good enough to fix the Eurozone’s ills.
The whole point of QE, after all, is to provide a shot of liquidity that would get people to make investments that will get the greater Eurozone economy going again. The expected ECB decision about  QE might not spur the markets at all if the projected QE amounts are deemed too small by the market. Also, the expected benefits might not materialize if much of this QE funds end up working to boost the value of more rewarding emerging markets. Finally, just because SE can boost equities markets, this might not translate to actual relief where it counts-GDP growth and payroll growth. Keep your eyes peeled on the ECB’s projected QE targets. If it isn’t big enough, things might take a turn for the worse for Europe.


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