Jennifer McKeown is senior European economist at Capital Economics, says Yes.
Mario Draghi sounded smug last week as he announced the start of his QE programme, pointing to recent improvements in business confidence and credit conditions as signs that it’s already working. Meanwhile, the continued depreciation of the single currency has raised hopes of a strong pick-up in Eurozone exports. But to the extent that these developments reflect expectations of future QE, the positive trends would be reversed if the European Central Bank did not deliver the €1.1 trillion of asset purchases that it’s promised. Moreover, the improvement so far has been minor. The business surveys still point to a recovery that is much too slow to make inroads into the huge spare capacity in the economy and diminish downward pressure on inflation. Meanwhile, bank lending has continued to fall and unemployment remains near a record high. Far from being unnecessary, QE may prove to be too little too late to prevent a long bout of deflation.
Paras Anand is head of European equities at Fidelity Worldwide Investment, says No.
The rationale for having a balanced view on the need for QE in the Eurozone stems less from a conviction that a broad-based economic upturn is underway, but more in questioning the potential for such a programme to drive growth and inflation in and of itself. Liquidity injections have shown themselves to be valuable in facilitating the management of systemic risk. However, the near universal low level of yields on sovereign bonds across the region and the results of the recent European Central Bank stress test of the banking sector imply that systemic risk is substantially lower today than it was a few years ago. So if the objective is to precipitate growth and inflation, why could the programme underwhelm? The answer is that a sustained recovery in end demand in the Eurozone requires a key ingredient: confidence. And there is no guarantee that an open-ended asset repurchase programme will generate that confidence in the real economy.