QE for Europe and China?

Yuan, euro and US dollar notes

Even though the US Federal Reserve looks likely to end its cash injections after five years, other major central banks in Europe and China are contemplating quantitative easing (QE).

What's brought this about? In short, the spectre of deflation and a slowing economy.

When interest rates are nearly zero or very low, cutting rates may not provide enough stimulus, so central banks have to look at other tools.

Inflation in the eurozone is currently at just 0.7%, considerably below the European Central Bank's (ECB) target of just below 2%, while in Germany, inflation is running at only 0.6%.

For China, consumer prices are rising by 1.8%, which is half of its target. Worse, the latest figures for producer prices showed them falling by 2%: the producer price index (PPI) has been deflationary for 26 consecutive months.

In other words, there are signs of deflation that are worrying both the ECB and the People's Bank of China (PBOC) amidst weak growth.

Both central banks are contemplating buying assets, such as government bonds, which is what the Fed and Bank of England did during the global financial crisis.

The ECB is widely expected to act on Thursday.

The PBOC has been taking measures to ease credit for small firms and some mortgages. But for these central banks to undertake QE would require exhausting other tools in their arsenal.

Mandate debate

I have written before about the challenge for the ECB, no less because it would need to decide which countries' bonds to buy.

For China, that wouldn't be the issue.

It would, though, face the same ban on monetary financing of government debt that has caused the ECB to refrain, even during the euro crisis. China's Central Banking Law says that the PBOC may not directly purchase or underwrite government bonds or other debt.

ECB headquarters The ECB has already made two rounds of unlimited cheap loans to banks

So for both central banks, the decision to do QE would require a debate over their mandates.

Both have already done quite a lot of cash injections, largely via banks.

For the ECB, there have been two rounds of unlimited cheap loans to banks, known as LTRO.

For the PBOC, it has cut the reserve requirements - the amount of cash that rural banks need to hold - to inject more cash into select sectors.

It has also provided cash or liquidity to the China Development Bank, which in turn offers financing to the economy.

The stabilising of the renminbi also means that there is less money printing to peg the currency, though that is largely sterilised - or offset - by the state-owned banks having to deposit the equivalent amount into the central bank.

But as deflation persists, and with debt in the banking sector also being a concern for China, these actions don't seem to be enough.

There are still tools available, such as cutting reserve requirements (RRR) for Chinese banks.

My colleague Robert Peston has written about how the ECB could charge banks to deposit money with it - a negative deposit rate that was tried by Denmark's central bank in 2012.

So QE could return, even as the US policy ends. In any case, interest rates won't be the only thing to watch in terms of what central banks do in the future.


Today's figures show that inflation in the eurozone is only 0.5%. That proof of stubbornly low inflation will put yet more pressure on the ECB to come up with something on Thursday that really makes a difference.

Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this

    Comment number 49.

    Printing money certainly did the Weimar republic no good at all

    actually it did, it meant people could buy stuff, even if they needed ludicrous denominations to do it, if they hadn't printed it then no-one could have bought anything at all. WIth hyper-inflation there's little choice but to print money to maintain some hint of normality, printing money was a symptom, not the cause

  • rate this

    Comment number 48.

    QE sounds kinda cute, but no one knows what the result will be in a few years time. Printing money certainly did the Weimar republic no good at all. At a time when the printing presses are going full belt, then almost ANY other asset looks attractive. Stock markets and houses are going up and sovereigns and citizens are in debt. The Politicos aren't going to be in office when the crash happens!

  • rate this

    Comment number 47.

    44.Man in London "prosecuting bankers who break the law"

    Banks do not break the law - they have had it re-written to ensure that everything they do is legal. Hence no prosecutions.

    In fact the very fact there are no prosecutions shows just how much of the law has been re-written so that the bankers cannot be guilty of breaking it!


  • rate this

    Comment number 46.

    The ECB has left it too late.
    The value of debt in real terms is likely to increase in big EU debtor countries which could result in further public sector cutbacks and a spiral of GDP decline.
    Too little too late.
    The Eurozone is doomed!

  • rate this

    Comment number 45.

    “The bank hath benefit of interest on all moneys which it creates out of nothing.”
    - William Paterson, founder of the Bank of England, 1694.

    A UK Pound today will buy about the same as the old threepenny bit could in the 50s;
    The Pound in your pocket is worth less and less.
    DEBT on the other hand is growing by the day.
    Savers, pensioners and workers are getting fleeced...

  • rate this

    Comment number 44.

    I think actually prosecuting bankers who break the law will stimulate the economy much more than anything.

    As long as they are allowed to keep breaking the law and stealing, they will keep destroying the real economy.

    Of course this will not be acknowledged by the Bankster Broadcasting Corporation.

  • rate this

    Comment number 43.


    Swamps n' alligators.

    Remember the PURPOSE of extraordinary economic measures is to return an economy to an ordinary operating mode.

    So logically the steps should return the economy to an ordinary mode as quickly as possible.

    Hence QE is counter-productive.

    Far better to liberate locked up assets at a lower price so an economy can make use of them - i.e. bankruptcy beats QE!

  • rate this

    Comment number 42.

    QE for EU (USA/UK) means more debts added on to speed up a total collapse of the 'already-bankrupt' economy in the West; whilst QE for China is just a bit treat given to speed up the fast-growing economy (which had a sign of being a bit slower than expected due to the tighten currency policy to cool down the property market in China).

  • rate this

    Comment number 41.

    Q.E. is an essential tool to prevent recession and a depression.
    Imagine a World with no Q.E. to pump up the economies...Mass unemployment and a depression.!!...Where would property prices be then.?
    The World is no on a drip feed of Q.E. because without that drip feed, many major economies would go bust. (They are already in hock for TRILLIONS)..
    Not a rose picture. I'm afraid to say..

    More Q.E.

  • rate this

    Comment number 40.

    andy @15

    First: the body economic needs a circulation, of money, carrying value to all living parts (in a democracy for more than 99% slave-subsistence, 1% maximum command). As yet lacking an efficient circulatory tree (equal market votes delivered to all), when crisis and hoarding and gridlock strike even the money-making F-R banks, we put money in helicopters, and…
    (Bob Newhart)

  • rate this

    Comment number 39.

    35 John_from_Hendon

    Yes, that is the conclusion..
    Unabated consumerism enabled by DEBT, Q.E. and INFLATION WILL result in a collapse of sorts especially when other major economies do the same...Competition for resource by the many will just accelerate the process.
    But there is no stopping it now that it has started.

    DEBT pays
    SAVING doesn't.
    The road to ruin...

    All encouraged by our bankers.

  • rate this

    Comment number 38.

    QE for Europe and China?


    You knew it, this QE for EU/USA/UK is different from that QE for China.........hehehehehe

  • rate this

    Comment number 37.

    Debate is confused, terms ill-defined, perspectives undeclared or unrecognised 'second-hand'. In etymological & practical 'sense', socialism is living together, capitalism allocation of resource for future (store grain, develop tractor, study weather to forecast, etc). The picking mechanism JfH truly seeks is not Mr 20% or Stalin, but in equal partnership: trusted intelligent political conscience.

  • rate this

    Comment number 36.

    30.John_from_Hendon - Define capitalism.It went bust and was bailed out by govts, which isn't capitalism.It's been described as socialism for the rich.But before you go on about laissez-faire being true capitalism that form died centuries ago because it didn't work.Basically we have a contrived economic system,which works however the elite want it to.We could of course try to have it run our way.

  • rate this

    Comment number 35.

    33. coplani

    You do realize that you find your own conclusion abhorrent and nonsensical - indeed your recommendation will inevitably lead to the total collapse of the market/capitalist system.

    In the end there is no point in working to create excess value if that value when created is worthless. Why work and save for a pension at all? Your avowed philosophy is live now, cheat and then die!

  • rate this

    Comment number 34.

    QE is fundamentally financial WD40 to keep the survivability hamster wheel from seizing up completely

    Its like maintaining workings of a poor quality 1930s vehicle to work/function as the main delivery vehicle in 21st century, it is endemically not fit for purpose & requires a NEW MODEL instead of minor patchwork repairs to the worlds EXISTINAL systems

    RAC, nor QE can save this vehicle

  • rate this

    Comment number 33.

    Why not.?
    Consumer societies require more money to buy.
    Print and growth GDP increases.
    China is just catching on.
    USA has been doing it for decades...."On the never never".
    Watch those consumers go go go...

    DEBT, Q.E., INFLATION are all interlinked.

    Savers, today are mugs...sitting by whilst their savings depreciate through inflation..

    Consumer Society.."Me Me Me" generation...Grab it now....

  • rate this

    Comment number 32.


    You write "QE for Europe & China?" (note: question mark).

    What would you call the enormous credit expansion China has taken place officially via the Chinese Central Bank over the past decade? What about all the unofficial, unquantifiable vas sums of magic money of Chinese provincial shadow banking?

    If that's not China engaging in QE at a momental scale, I don't know what is.

  • rate this

    Comment number 31.

    30+ "Debtors must pay their (secured) debts" or lose the asset pledged as security.

    Several of you want not to pay your debts but hang onto assets 'purchased' with the (secured) borrowed money. Just think about this: Not paying for your borrowings results in arbitrary transfer of wealth in assets - which can be cyclically pledged as security and the same thing happen again - just insane!

  • rate this

    Comment number 30.

    25.. A universal debt jubilee is also insane as this too PERMANENTLY breaks capitalism (till the next major war or several generations till sanity resumes).

    Debtors must pay their debts -or lose the assets which they have pledged as security. Break this relationship and this too breaks capitalism and so kills jobs. It is also no accident that wages have not risen in the last 5 years of QE etc.


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