The ECB’s decision to double down on monetary stimulus should be regarded as an act of desperation. Indeed, despite the central bank's aggressive approach, monetary policy in the absence of structural economic reform risks being ineffective.
FRANKFURT – The European Central Bank is in the middle of a big, risky experiment. Key interest rates have remained close to zero for six years now. Financial markets are flooded with liquidity. Crisis management has resulted in major market distortions, with some segments’ performance no longer explainable by fundamental economic data. The unintended consequences of this policy are increasingly visible – and will become increasingly tangible with the US Federal Reserve’s exit from post-2008 ultra-loose monetary policy.
FRANKFURT – The European Central Bank is in the middle of a big, risky experiment. Key interest rates have remained close to zero for six years now. Financial markets are flooded with liquidity. Crisis management has resulted in major market distortions, with some segments’ performance no longer explainable by fundamental economic data. The unintended consequences of this policy are increasingly visible – and will become increasingly tangible with the US Federal Reserve’s exit from post-2008 ultra-loose monetary policy.