Europe dives into quantitative easing

Europe joined the quantitative easing (QE) club yesterday as the European Central Bank and Europe’s national central banks began purchasing bonds and sovereign debt.

The long awaited stimulus comes as part of the ECB’s massive asset purchasing programme, whereby Europe’s central bank will inject up to €60 billion a month into the eurozone.

The ECB announced on Twitter the public sector purchase program had started yesterday morning.

This is the first step in the plan to inject more than €1 trillion into the economy, which has been plagued with deflationary pressures for months.

Figures released last week from Eurostat (Europe's statistics body) showed that, although deflationary pressures were easing, lower energy prices were still fuelling Europe’s deflation.

The QE plan aims to curb this deflationary pressure and the ECB has its fingers crossed that the massive capital injection from buying bonds from investors will stimulate the struggling economy.

In a statement in last January, the ECB explained its QE purpose: “Asset purchases provide monetary stimulus to the economy in a context where key ECB interest rates are at their lower bound.

“They further ease monetary and financial conditions, making access to finance cheaper for firms and households. This tends to support investment and consumption, and ultimately contributes to a return of inflation rates towards 2%.” 

Early reports indicate European central banks bought French, German, Italian and Belgian bonds.

The Wall Street Journal reported that bond yields were falling across the currency bloc, hovering close to their all-time lows.

German 10-year bond yields were down to just 0.32% and are at a negative levels on maturities of up to seven years.

The Greek dilemma 
However, the ominous shadow of the Greek economy still hangs precariously over the eurozone.

Despite Greece’s bailout agreement being extended in late February, its list of required economic reforms is far from complete, according to eurogroup head Jeroen Dijsselbloem.

In an interview for Frankfurter Allgemeine Zeitung, EU Commission vice-president Valdis Dombrovskis said Greek reform proposals must first be approved by the Greek Parliament and then implemented before the next bailout disbursement is made.

The bailout extension ends in June and there are expected to be continuing discussions between Greece and their creditors until that date.    

Jwalls@nbr.co.nz

Follow @Jasonwalls92