Will the ECB’s quantitative easing strategy withstand the critics?

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On Thursday the European Central Bank (ECB) launched a program to buy government bonds, also known as quantitative easing. In an attempt to combat the on-going debt crisis, the ECB chairman Mario Draghi stated that the ECB would do whatever it takes to preserve the euro.
On Thursday the European Central Bank (ECB) launched a program to buy government bonds, also known as quantitative easing. In an attempt to combat the on-going debt crisis, the ECB chairman Mario Draghi stated that the ECB would do whatever it takes to preserve the euro.

The ECB’s efforts have been met with doubts. This may be a result of emerging reports that the initial amount of funding has been scaled down to almost half the initially announced seize of the bond purchasing programme. To which Germany’s government, the Bundesbank and economy are opposing, stating fears that German taxpayers may be required to fit the bill for ‘reckless’ government spending in other member states within the EU.

Elena Constantinou, who runs Ultimate Performance Management Ltd in Nicosia also has doubts. She elaborates: ‘Mario is trying to prevent a deflation spiral and latest figures show we are very close to deflation, which is a short term solution. Europe’s problems require a different kind of solution and no matter how much money the ECB prints, if the banks which are the mechanism that inject money into the real economy, are not lending, they won’t be prepared to lend when growth remains weak’.

‘When they were reiterating a month ago their determination to keep the cap and out of the blue decide to drop it, this is a message that there is a chance for the euro area to fall apart,’ Elena added, showing further uncertainty. Only time will show if her predictions are correct.