Will The ECB's Quantitative Easing Sink The Euro?

As Greece voted to install left-wing and anti-austerity party Syriza last weekend, the European Central Bank (ECB) embraced quantitative easing as a measure to stabilize the eurozone. While quantitative easing tends to lift the prices of assets such as stocks and real estate, it should have the opposite effect on the relative value of the euro. Details of ECB Quantitative Easing When an economy becomes weak, a modern solution to faltering growth is printing money and buying bonds, a process otherwise known as quantitative easing (QE).

By expanding the central bank's balance sheet as opposed to printing new money outright, QE is theorized to be more effective in stimulating real growth. The problem has been that despite weakness in the European economy, the European Union’s founding documents prohibit the ECB from financing governments. Large-scale government bond buying might violate those rules. In 2012, ECB President Mario Draghi had pledged to do “whatever it takes“ to save the common currency from collapse. Now, as Greece threatens to leave the euro, it seems that QE is what it takes.

On January 22, Mario Draghi announced a sweeping round of QE aimed at sparking demand and economic growth in Europe. The ECB will buy €60 billion of government bonds per month through at least September 2016 in a €1.1 trillion QE package. The hope is that the extra money pumped into the eurozone economies through the bond monetization program will stimulate demand, stave off deflation, and bouy shaky European stock markets. (For more, see: Quantitative Easing: Does it Work?)