ECB must pursue quantitative easing to reverse deflation

Oxford

IT is now a near certainty that, by the end of this year, falling energy and commodity prices will push annual inflation in the eurozone below zero - well under the European Central Bank's (ECB) target of near 2 per cent. Rather than continue to allow misguided conventional thinking, centred on German economic ideology, to impede effective action, the ECB must pursue quantitative easing (QE) "for the people" - an adaptation of Milton Friedman's "helicopter drops" strategy - to reverse deflation and get the eurozone back on track.

As it stands, conventional monetary policy has had - and American-style QE will have - little impact on the eurozone's core countries. This can be explained partly by the fact that, when it comes to credit provision, capital markets do far less of the heavy lifting in the eurozone (where banks matter more) than in the United States. As a result, bringing down yields on government, corporate and asset-backed bonds has less impact.