Quantitative easing: how Mario can tackle low inflation in Eurozone

mario draghi

Mario Draghi, President of the European Central Bank (EC Audiovisual Services)

One of the major issues that the European Central Bank (ECB) struggles to solve is low inflation. It seems that it is not even close to the target that has been set; a rate of below but close to 2% over the medium term. April’s inflation data indicated a 0.7% inflation rate, a percentage not far away from deflation levels. If we also add European economy’s thin growth outlook, it is more than obvious that an alternative measure has to be taken by ECB.

Quantitative easing: a just around the corner policy

Mario Draghi, ECB’S president hides an ace in his sleeve to deal with low inflation that has not yet put on the table. This is called quantitative easing (QE) and is an unconventional monetary policy that the central bank will surely discuss on the 5th of June when the bank’s governing council will meet. This was basically derived from his ‘almost’ pre-announcement during the meeting on May 8 where he mentioned that harder action would follow in June. Evidence of this started appearing in real market where the euro depreciated against the US dollar reaching levels below $1.36 on May 28.

Moreover, the major European stock indices (CAC 40, DAX 30 and FTSE 100) rose showing a psychological sentiment that this policy will be implemented. The only thing though that Mario Draghi waits for is the growth and inflation forecast from ECB’s economists which will not take long to come. But the question that comes to everyone’s mind is: will this policy be able to tackle the issue?

The pros and cons of this strategy

On the one hand, the central bank is trying to lower interest rates and increase the money supply through QE. The idea is to increase lending and liquidity levels by flooding financial institutions with money. Therefore, many businesses and households will take advantage and especially SMEs which need it the most.

On the other hand, there are risks that must not be taken lightly. First, the policy could work in a more efficient way it was supposed to because of increased money supply and drive inflation to levels higher than the ones targeted which eventually will reduce the purchasing power of people’s money.

The other risk lies on the opposite site compared to the previous one. The problem comes when the banks don’t lend out the extra money taken by the central bank leading to QE’s ineffectiveness. Therefore, if ECB is about to take bolder decisions and put this policy into force they will have to think twice because not only the risks but also the side effects might be worse than the non-implementation.

It is clear that European citizens will be the ‘guinea pigs’ in this procedure and since past policies’ mistakes have proven devastating for entire countries, ECB must be very careful in each and every step that it makes. However, we have to admit that ECB expected attempt is coming after first trying other alternative and less harsh measures.

European elections outcome and ECB’s limits

The eurosceptic message that people passed through with their vote in last weekend’s elections is an issue that national governments and the European parliament need to pay attention to. What European citizens showed is that they only care about job creation and lasting growth and prosperity.

Those will not come easily even if QE works out after all. This means that ECB does not have the absolute and everlasting solutions in its magic box. A permanent antidote in this case, which was actually implied by the simple voters, must be given by each government separately. National governments must create policies that will help the economy be more productive and competitive, which will boost growth further and not just count on the ECB tricks.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Parliament adopts its position on digital copyright rules

On Youth Education: “Just a normal day in the life of a medical student”

The green hydrogen revolution has started, and it won’t be stopped

Varna (Bulgaria) awarded European Youth Capital 2017

Ebola: EU provides an additional €30 million to tackle the outbreak in the Democratic Republic of Congo

Tuesday’s Daily Brief: prizewinning journalists freed in Myanmar, new tracking tool for suspected terrorists, and a global bid to stop snakebite deaths

Mental health and suicide prevention: the contradictory access in a reference city of southern Brazil

First Western Sahara talks at UN in six years, begin in Geneva

Killing of aid worker in Syria part of ‘disturbing trend’

Drones are saving lives in Tanzania’s remote communities

“Leaked” TTIP document breaks post 8th negotiations round silence and opens door to critics

Here are three technology trends changing the way you travel

UN’s Bachelet rejects Sri Lankan official’s ‘spin’ on Human Rights Council encounter, urges reforms

Don’t let smoking steal life’s breathtaking moments, urges UN health agency

Eurozone plans return to growth

Afghanistan: UN condemns blasts that leave 8 dead at cricket stadium

These are the 5 most exciting cycling projects in the world

MEPs and European Youth Forum call on EU to Invest in Youth

LGBT community in Chechnya faces ‘new wave of persecution’: UN human rights experts

UN launches Facebook Messenger-powered bot to take on climate change

Why we need artists who strive for social change

Botswana has decriminalized gay sex. But, it’s still illegal in 70 countries

French elections: by the time the EU economy revives and the migration crisis is solved extremists could take over Europe

Estonian Prime Minister Ratas: Europe is a thought that must become a feeling

UN Children’s Fund chief condemns ‘horrific’ Kabul bomb attack

The age of influence: why digital platforms must come clean about political ads

Council’s position on Visa Directive a step back for young people’s mobility

Posting of workers: final vote on equal pay and working conditions

European welfare states are failing young people

How the future of computing can make or break the AI revolution

Google prepares to final EU judgement over Android antitrust case

Chart of the Day: These are the world’s most innovative economies

Greece and Ukraine main items on EU28 menu; the course is set

New citizenship law in India ‘fundamentally discriminatory’: UN human rights office

This AI trash can is designed to stop you wasting food

WEF Davos 2016 LIVE: “CO2 is not the problem, it is the symptom”, the pilots who crossed the world using solar energy cry out from Davos

It’s just electronic cigarette, don’t worry?

Teamgum @ TheNextWeb 2014

South Korea: A cherished partner for the EU

The EU launches € 1 billion plan on supercomputers and tries to catch-up with competitors

The sad show of Brexit

India is investing more money in solar power than coal for first time

This is the critical number that shows when housing breaks down

How energy infrastructure is shaping geopolitics in East Asia

EU Parliament: Deposit guarantee and trading platform transparency sought

EU summit: Are the London Tories planning an exit from the EU?

Is Eurozone heading towards a long stagnation?

Movius @ MWC14: Discussing novel Communications Applications over a “CAFÉ”

Could the EU’s ban on palm oil in biofuels do more harm than good?

The metamorphosis of the categorical imperative in medical students

Why the Fourth Industrial Revolution needs more arts graduates

This digital currency could build a more sustainable global economy

Key Brazilian border crossing for Venezuela refugees reopens as asylum numbers pass last year’s total

Indonesia has a plan to deal with its plastic waste problem

An EU first: youth Ministers debate youth participation in live broadcast

Britain aligns with EU rivaling US on trade and Iran, abandons bilateral ‘Midsummer Night’s Dream’

Guterres holds ‘focused and frank’ informal discussions over future of Cyprus

UN’s Grandi slams ‘toxic language of politics’ aimed at refugees, migrants

Rich economies not a promise of education equality, new report finds

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s