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“Top German Body Calls for Qe Blitz to Avert Deflation Trap in Europe”
by The Telegraph   
March 11th, 2014

A leading German institute has called for full-blown quantitative easing by the European Central Bank (ECB) to head off a deflation spiral, marking a radical shift in thinking among the German policy elites.

Marcel Fratzscher, head of the German Institute for Economic Research (DIW) in Berlin, demanded €60bn (£50bn) of bond purchases each month to halt the contraction of credit and avert a Japanese-style trap.

“It is high time for the ECB to act. Otherwise Europe risks falling into a dangerous downward spiral of sliding prices and declining demand”, he wrote in Die Welt.

“The ECB must counter the deflation threat quickly and decisively, and launch a broad-based program of bond purchase along the lines of the Federal Reserve,” he said. The scale should be 0.7pc of eurozone state debt each month, comparable to ‘QE3′ in the US.

The plea came after the ECB refused to take further action last week, even though the M3 money supply has fallen below zero over the last eight months and inflation has dropped to 0.8pc. The ECB’s hawkish line has pushed the euro higher to $1.39 against the dollar, further tightening the deflationary vice.

The International Monetary Fund has warned that the deflation risk in the eurozone may now be as high as 20pc, leaving the region vulnerable to an external shock.

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