Optimism is tinged with caution - ECB quantitative easing

YESTERDAY’S long-anticipated announcement by the European Central Bank that it would begin a quantitative easing (QE) programme to allow it print money to facilitate the purchase of up to €60bn worth of sovereign bonds from March until the end of September next year may be the panacea that struggling European economies need so very badly.

But then it may not be and that fact, that even such tremendous sums cannot guarantee a positive outcome, shows how precarious Europe’s economic situation really is.

The ECB move comes three months after the US Federal Reserve ended its QE programme and is seen as a decisive moment in the strained European integration project. As if to underline the urgency around reversing dishearteningly dangerous figures, Spain’s rate of unemployment unexpectedly hit a nerve-racking and unsustainable 23.7% yesterday, more than double our falling, but still challenging, 10.6% figure.

The prospect of a radical left-wing Syriza government in Greece after Sunday’s elections, one determined to review debt commitments placed on Greece, adds another known unknown to the equation. Should a Syriza government win significant concessions on its debt then it is impossible to imagine that other debtor countries — such as us — would not demand similar flexibility — the flexibility that might mean the difference between social consensus or disenchantment.

Even if it is counterintuitive to be less than optimistic about an intervention on this scale, after almost of decade of distressing reductions in the living standards of ordinary people and public services, it is to be expected that any optimism must be tinged with caution. The back-to-life infusion comes at a moment when the patient is really struggling — eurozone inflation has turned negative and — at minus 0.2% — is far below the ECB’s target of just under 2%.

How the markets respond is anyone’s guess, but many analysts suggest the market has already priced in the impact of the programme so an immediate surge in equity values or improved inflation rates are unlikely.

As ECB president Mario Draghi detailed the ECB offensive, two other events that may have varying degrees of influence on the prospect of European recovery took place.

The Council of Europe launched a report on workers’ rights and protections. Ireland did not get a glowing report, as we failed to comply with half of the 22 legally binding targets set by the relevant charters. Among the areas discussed were how our minimum wage legislation is so easily sidestepped and the pretty negative impact zero-hour contracts have on employees. All the while the theorists — especially the American ones — at Davos World Economic Forum warn that European recovery is being stymied by inflexible labour and legislation that insists on what we regard as basic, dignity-and-decency protections for workers.

Once again, as great, almost impenetrable, forces are at play, all most of us can do is hold our breath and hope that this prescription will cure Europe’s stagnating economies.