The decision to move forward with its own quantitative easing (QE),was not an easy one for the European Central Bank(ECB).It was not an easy one because ECB was born as the guardian of stability,with limited tools for what it was necessary for such a purpose. Besides the fiscal policy contraint of -3% deficit for the European Union countries,somehow forced ECB to keep monetary policy on the restrictive side to get close supervision and control of inflation and its trend.
But actually the issue is deflation,and who may have thought about it in the nineties, before the euro was in circulation?.
The fact is that rightly the ECB dropped the interest rate down from 0,25 to 0,15%,and will increase the money supply by 400.000 millions of euros, available for banks in the next months, to support credit and consumption.So far the inflation trend was in the deflationary direction from 1% to 0,7% for 2014.-
Now the question is whether will it be enough?:
There are some considerations to answer that question:
a. It is very important the so called "Forward guidance policy", to be applied.Markets have to be guided about what the ECB want them to do.Communications skills are decisive to make the impact of these changes in monetary policy stronger.
b.- The institutional framework which contraint ECB, do not allow to be too much prone on expansionary experiments.Would it be possible to go on with a QE-II, in case this QE-I fails?.As long as Martes get the answer as positive ,it will help to find the seeking path for stronger and faster recovery.-
c.- Will the euro depreciation be effective to generate inflation?.Depreciation ,is a change in relative prices between tradeable and non tradeable goods.Besides it increases both imported inputs cost, and consumer goods, but by the same token, other costs such as domestics one, in relative terms goes down.To become inflationary it has to be that its main impact is strong and persistent throught all the productive chain,such that all cost end up to be higher.
At first glance, it seems that the ECB has found the right moment to make this decision,and of course that it is a good signal of awareness about the real conditions of the Euro zone economy.As it was the case for the USA economy in 2012, to get the economy back on track it is more a matter of judgment, to decide to right time to apply corrective policies, than policies it self.
