What’s more popular in economic news today than the European economy? The 19 member Euro Zone continues to struggle even after the ECB lowered interest rates time and time again. Now, more stimuli are here to save the euro! The ECB has announced its plans for quantitative easing over the next couple of years; and those plans are big; but for me, there’s still 1 big unanswered question. “Will the ECB’s attempt at quantitative easing work?Today, we’ll take a look at the QE plans set forth by the ECB, discuss whether or not the plans will likely work, and chat about a major flaw that I see in the euro as a whole. So, let’s get right to it… Quantitative Easing In the Euro Zone The ECB has announced that in an attempt to refuel the European economy, they will be purchasing €60 billion per month in both private and public sector debt. So, what does that mean for the Euro Zone? By purchasing private and public sector debt, the ECB will be pumping €60 billion per month back into the Eurozone Economy. As a result, businesses and consumers alike will be more likely to spend more money; thus reaching desired inflation levels. The goal is to cause 2% inflation by the end of 2016; and it’s very realistic. Another way that QE will help the Euro Zone is by driving interest rates further down. By creating enough liquidity in the market, asset prices will rise. As asset prices rise, interest rates fall; giving business owners and consumers alike more incentive to borrow money and boosting the economy in the Euro Zone further. So, all in all, the Euro Zone QE seems to be a good thing…right? It’s Not Always That Simple When you look at a plan in writing, it seems easy to say something like “OK, we’ve got this all mapped out, it will go perfect…” However, in action; plans don’t always work out as planned! Sure, I agree that the QE will indeed get inflation going in the right direction. I also think that investors will definitely be more interested in Euro Zone assets as interest rates go down and easy money is available. However, I also know that at some point, QE has to end. In my opinion, the euro is a damaged concept. Sure, we can slap a band aid on the issue and hope it heals itself over time, but I’m not sure that’s going to be the case for the Euro Zone. Why I Think the Euro Is Broken To be honest, I think the euro was broken from the beginning. When we look at the idea of having 19 members under one currency, it seems like a solid plan. However, when we start to dig into the details with regard to how important singular currencies are to economic growth, the plan starts to unravel. For an economy to grow, it has to be able to recover from hits. For instance, when the United States hit a major hurdle in 2008, the Federal Reserve jumped into action; implementing quantitative easing and reducing rates. The move had a positive effect on the United States without affecting any other region negatively. However, because there are so many different countries operating with the Euro the needs of one won’t necessarily be what the others need. So, while I like the basic concept of the Euro; I think that the struggles we’re seeing now show that in practice, currencies work best under singular circumstances.

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Hey everyone, I'm Joshua Rodriguez. I'm the founder of CNA Finance as well as several other sites. If you'd like to connect with me, follow me on or Twitter! I'd love to see ya there. Also, if you're looking for top quality content for your blog, news outlet, or any other website for that matter, please reach out to me at Info@CNAFin.com! Legal Disclaimer - CNA Finance is NOT an investment advisor. All investment decisions should be well thought out and made with the help of a an investment advisor. For our full legal disclaimer, please scroll to the bottom right of this page.

2 COMMENTS

  1. I’d be more concerned about the fact the Dollar has appreciated A LOT in my country. I do earn money in this currency, so it’s in my advantage, but this will also drive the price up in my country, so it’s not so nice.

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