The European Central Bank (ECB) has agreed to a trillion-euro bond purchase program. It believes holding interest rates at historic lows and driving up demand for the euro through private and public sector bond buys will be enough to stave off economic stagnation and the threat of deflation.

Chief of the ECB Mario Draghi, said the purchase of 60 billion euros (AUS$ 69 billion) would be enough to stimulate Eurozone economies and push inflation towards the 2.0 per cent target.

These measures, known as quantitative easing (QE), are expected to continue “until we see a sustained adjustment in the path of inflation,” said Mr Draghi.

Quantitative Easing has been used successfully by other central banks to jump-start their own flailing economies. However, some government leaders believe that by introducing such measures the ECB will overstep its mandate and effectively be running their countries for them.

The most strident opposition comes from economic powerhouse Germany. The German government and its central bank, the Bundesbank, argue that quantitative easing gives the ECB a license to print money. Printing such huge amounts of money will enable governments to dig their economies out of debt, but won’t do anything to put pressure on them to reform.

Mr Draghi hit back saying QE was a valid monetary policy tool and that the 25 member governing council voted ‘unanimously’ to implement it. He also added that a ‘large majority’ of Eurozone countries were in favour of it.

But this doesn’t account for the fact that taxpayers in stronger economies (like Germany) will be left to fund the buy-up should any of the weaker economies default on their debts.

In fact, it has been estimated that only 20 per cent of the risk is shared among member nations with the other 80 per cent assumed by the national central banks of the countries involved.

Economic experts are divided as to the efficacy of quantitative easing. They argue a single fiscal policy for a single currency block won’t account for the vastly different states of financial health of the 19 member nations.

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