ECB easing could widen payments imbalances

ON Dec 3, the European Central Bank (ECB) was expected to expand its already highly aggressive quantitative easing programme - an attempt to kick-start Europe's anaemic recovery and stave off deflation. The ECB will present its action as an appropriate monetary policy response to the euro area's low inflation rate. But the main channel through which its actions will work will be a further significant depreciation of the euro.

This might be good for Europe, but it will impose a substantial burden on the rest of the global economy. Crucially, the ECB's probable action will exacerbate international payments imbalances, which could be the prelude to disorderly exchange rate movements.

It would be far better if attempts to revitalise the euro area focused on more expansive fiscal policies by those euro members, especially Germany, that have the policy room to do so. However, if the past is any guide, I won't be holding my breath waiting for this to happen.