For further comments or to arrange an interview, contact Communications Manager Kate Andrews: kate@adamsmith.org / 07584 778207 Commenting in advance of the ECB's quantitative easing package expected today, Head of Research at the Adam Smith Institute, Ben Southwood, said:
Finally! The European Central Bank has started to acknowledge its responsibility for the catastrophic depression in Greece, and the hardship in Spain, Portugal and Italy. It has kept money far too tight for far too long.
Quantitative easing cannot solve many problems, but there is precisely one it can tackle—deflation brought about by central bank incompetence, like that we are now seeing across the Eurozone. That was what caused the Great Depression in the 1930s and easier money can reverse it.
But there are reasons to be sceptical: temporary QE that is not tied to a commitment to achieve a target (such as the ECB's 2% consumer price inflation goal) has sometimes turned out to be 'pushing on a string'. Without being tied to a clear goal, QE can fail.
What's more, the structural problems economists have identified in Europe are very real. Even before the crisis, countries like Italy and France were hamstrung by tight labour market regulations that kept unemployment close to 10%. Changing these can enhance growth in the short and long run, and QE should be combined with rigorous reform so that long-term growth can be achieved.
The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.