The ECB’s Faulty Weapon

With inflation in the eurozone stubbornly remaining on a downward trajectory, pressure on the European Central Bank to do “something” to prevent outright deflation is growing. But, given the financial structure of eurozone countries, would the preferred "something" – quantitative easing – actually do the trick?

BRUSSELS – With inflation in the eurozone stubbornly remaining on a downward trajectory, pressure on the European Central Bank to do “something” to prevent outright deflation is growing. This “something” is usually understood to be massive asset purchases, or quantitative easing (QE). But would QE actually do the trick?

The discussion has so far followed easily predictable national patterns: Creditor countries do not object to deflation, because it increases the real value of their investment, whereas debtor countries’ repayment burdens would grow heavier.

In a closed economy, to every credit there must a corresponding debt. But consider individual countries: some run a large foreign debt, while others maintain a large creditor position.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/lr2CAx3;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.