With the European Central Bank (ECB) having just started quantitative easing in March 2015, ING senior economist Teunis Brosens takes a look at the situation.
What is quantitative easing?
Quantitative easing (or QE) is typically a measure to inject money directly into the economy with the aim of increasing the money supply and spending. Brosens explains the ECB approach involves buying over a thousand billion in government bonds until at least September 2016.
“Some say it will not work or it comes too late,” says Brosens.
Weaker euro and cheap borrowing
However, Brosens says the weakening of the euro (and the potential boost to exports) is a sign it is having an effect. As are cheaper rates for borrowers.
“Interest rates had already been at historic lows – and for many European governments , they have now even turned negative,” says Brosens. “Even some large companies are borrowing at close to no cost.”
“Whatever it takes”
He says structural reforms will be needed to improve growth in the longer term. But, in the short term, the ECB is doing “whatever it takes” to secure a recovery.