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The Yomiuri Shimbun
Eurozone economic recovery based just on monetary easing will be fragile
ECB追加緩和 金融政策頼みだけでは危うい

Monetary easing alone will not be able to eradicate concerns about deflation and realize a full economic recovery in the eurozone. Other steps will be essential, including expanding public investment and undertaking structural reforms to boost the economy’s growth potential.

The European Central Bank has decided on a comprehensive, additional monetary-easing policy that exceeded market expectations.

The ECB will lower the rate of interest paid when private banks deposit surplus funds at the central bank from the current minus 0.3 percent to minus 0.4 percent.

In addition, the ECB will expand its quantitative easing program, which pours capital into the markets. This program, which includes buying government bonds, will be boosted from €60 billion a month to €80 billion (about \10 trillion) a month.

The eurozone is on the brink of tumbling into deflation. Sluggish crude oil prices and other factors pushed the single-currency bloc’s February rate of consumer price increases into negative territory for the first time in five months.

Concerns are growing that the eurozone could see low economic growth over an extended period due to a decline in production and exports accompanying a slowdown in China and other emerging economies.

The ECB’s aim of attempting to underpin the economy by launching another wave of monetary easing to dig up demand for capital among companies and individuals is appropriate.

In the markets, the additional easing was welcomed in some quarters, which sent shares up and the euro down against the dollar. However, before long, share prices dipped and the euro strengthened again.

Risks of easy money

At a press conference, ECB President Mario Draghi stated, “We don’t expect that it will be necessary to reduce rates further.” This comment was made to dash market expectations for further easing.

We think this symbolizes the extent to which the eurozone economy has become dependent on monetary easing.

If the ECB continues to push interest rates deeper into negative territory, it runs the risk of worsening side effects such as weakening banks’ earnings and causing real estate prices to soar as money freed up by the easing pours into this sector.

Germany and other nations that oppose purchasing massive volumes of government bonds may strengthen their opposition to the plan, leading to the unraveling of the unity among euro nations and heightening the risk of sparking turmoil in the markets.

A recovery of Europe’s economy that relies only on monetary policies will be fragile. As was confirmed during February’s meeting of finance ministers and central bank governors of the Group of 20 major economies, each European country should be using every policy at its disposal, such as devising growth strategies and fiscal stimulus packages.

In southern European nations, where unemployment levels remain high, labor market reforms and other steps to improve mobility in employment will be vital.

We hope Germany, which has the financial wherewithal to do so, will embark on a program to increase government expenditures to stimulate the economy and pull growth along.

Another urgent task is restoring the health of the financial system by accelerating efforts by each bank in Europe to dispose of nonperforming loans.

While Europe and Japan continue their monetary easing, the United States is searching for an opportunity to raise interest rates again. Financial authorities in each nation must exercise great care to ensure sudden currency flows seeking to take advantage of differences in the direction of their policies do not throw the markets into confusion.

(From The Yomiuri Shimbun, March 13, 2016)

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