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Further monetary easing seen helping EU nations

Published Mon, Aug 18, 2014 · 10:00 PM
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THE European Central Bank is facing increasing calls from economists, the Financial Times, Bloomberg and other media to urgently boost liquidity to counter potential recession in Europe as growth falters in major European Union countries.

The calls for quantitative easing (QE) - bond and other asset purchases to flood bank reserves - followed worse than expected second quarter growth in Germany, France and Italy and a slide in production in Europe. ECB president, Mario Draghi has already announced interest rate cuts and attractive loans to banks to encourage them to lend more money to businesses. But economists and the media want full scale QE to regenerate contracting and stagnant economies.

In particular they are fretting that EU sanctions against Russia and its counter sanctions against EU agricultural products, will drag economies downwards. Poor second-quarter economic results illustrate that business sentiment and direct investment in job creating factories, plant and equipment have deteriorated. Germany's GDP contracted by 0.2 per cent in the second quarter this year, France has experienced zero growth in the first and second quarters and Italy has been in recession in the first half of the year . All three countries are especially vulnerable to Russian sanctions and counter sanctions. Germany, in particular, is highly dependent on oil and gas flows from Russia and prices may rise in the northern hemisphere winter.

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