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Discourse in Europe Between Weidmann & Draghi - 25th November 2014
After last week's announcement from the head of the ECB, Mario Draghi that he is open and ready to apply any measures necessary to stop Europe from falling further into deflation there has been major concerns raised as to how a Federal Reserve style QE could be implemented.
Since the beginning of this year the European Central Bank chief has been applying stimulus to the EU economy via several programs which as of yet have had little effect. Loans made available to the major European banks at far reduced rates were not made use of as much as expected and the additional rate cuts have done little to spur the local economies. In fact both Italy and France have both suffered significantly this year.
With the news last week that the ECB is considering QE, the purchase of sovereign debt, the key question is how?
It was far easier for the US Central Bank to implement their stimulus program as they were only dealing with one countries debt, there are obviously state differences however they all fall under the same federal umbrella. Unfortunately the European Union, although a similar prospect, has far more idiosyncrasies than the United States when it comes to cross border relations, circumstances and situations.
What we are seeing now is more disagreement within Europe as to whether Mr. Draghi's latest plans should even be possible. Jens Weidmann the Head of the Bundesbank and a member of the European Central Banks governing board has insinuated that the move may even be illegal. The Germans have long been against the use of QE as it is expected that they would stand to benefit the least of such a program and as they consider themselves the guiding economy within Europe feel they have more say than other members.
This is the prime example as to the difficulties of QE within the Eurozone.
We will have to wait to see what is discussed and announced after their next meeting on the 4th December to see whether the scheme will or can be taken any further.
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