Sometimes one hears the expression, "…better late than never…". However, I believe it is foolish to subscribe to the view that the European Central Bank's (ECB's) announcement that it is to expand its programme of bond purchases is going to be a panacea for the Eurozone economy.
On Thursday, January 22nd the President of the ECB, Mario Draghi, announced that the programme of buying assets worth EUR60 Billion (USD67 Billion) per month from March 2015 through to September 2016 was simply creating the framework within which growth potential can be realised.
Draghi was pointing to the fact that the key ingredient for economic growth to expand is confidence.
That does not require ever more state spending which racks up higher national debt or higher taxation and regulation. These factors have a habit of crowding out or frightening off the private sector.
It has been empirically proven that no party can waste capital more effectively that the sovereign state. It is far too easy for the state to be expanded, and yet too many politicians, be they local, national or even supra-national cannot resist tinkering with the economic levers and have a reluctance to relinquish control.
In short, the QE programme in the Eurozone will become an expensive failure if several national governments do not take this opportunity to implement meaningful structural reform.
QE in the United States; so different from the Eurozone.
Where the QE operated by the Federal Reserve Bank in the US worked was that it was conducted against a background in which the private sector perceived the economic environment as being pro-enterprise and conducive to investment.
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