QE Will Work Differently In Europe Than In The US

 

 

The US never hesitated to buy back government debt and is now profiting from its decisiveness. The American economy has grown strong and healthy again, while the European Central Bank is still trying to figure things out.

One reason why the ECB is hesitant has been underlined by German economist, Daniel Gros. He stated that ‘quantitative easing’ would not have the same positive effect in the Eurozone. QE is about lowering interest rates and make loaning money easier.

What Will Be The Effect Of QE In Europe?

In most countries in Europe, long-term interest rates are already at historically low levels, but that does not change the fact that the economy is aching for a breather. The problem with loans is mostly on the demand side as well, to be clear.

That is not all. Because of their increasing financial problems, the US had more to gain by introducing low interest rates in comparison to European countries who often have a savings surplus. Rising stock prices also have much more of an impact when a lot of families are invested in the stock market, which is the case in the US but not in Europe.

Lowering long-term interest rates has a much bigger impact in countries where mortgages with reviewable fixed rates are prevalent.  In countries where variable rates are prevalent, lower interest rates will not really have an effect.

In Germany, for example, where less than 50% of the population owns a home, lower interest rates are a disadvantage for the largest part of the population. Especially for families with a low income and a high need for consumption.