Long Awaited Eurozone QE Is Here, But Not Everyone Is Celebrating

The European Central Bank announced on Thursday that it would buy €60 billion worth of government and other bonds every month until September 2016 at the earliest. The announcement was widely expected and caused minimal volatility within share markets, and marked the bank’s first departure from its conservative policies.

However, the stimulus has many wondering whether or not an injection of liquidity will solve the region’s problems. While the fresh cash will likely help boost inflation within the bloc, some say the ECB’s program won’t be enough to fix the bloc’s economic problems on its own.

Not Everyone Was On Board

As expected, some of the ECB Governing Council members were against further easing and the vote for QE was not unanimous. The bank’s German members have been very vocal about their disapproval of adding more liquidity, saying it is effectively financing government debt. They worry that the fresh euros will take the heat off of governments dealing with struggling economies and the necessary financial and economic reforms will be abandoned. 

Currency Wars

The euro lost value following the ECB’s announcement, something most investors had been anticipating. Draghi said a weaker euro was not the aim of the stimulus, but acknowledged that it would benefit the region by making eurozone products more competitive. But elsewhere in the world, exchange rates could become a problem as euro-denominated goods will be more attractive. Some economists say that quantitative easing programs like this one set a dangerous precedent and could cause central banks around the world to begin weakening their own currencies in order to remain competitive.

What About Unemployment?

Many also saw the ECB’s easing plans as inadequate to address all of the problems the eurozone is facing. One of its biggest struggles has been sky-high unemployment rates across the entire region. Without increased job growth, the region’s domestic demand is likely to remain stagnant.