If the Fed managed to save the US economy with their liberal expansionary policy, why doesn't the ECB follow suit if it is much more efficient in reducing unemployment etc?

Also, why did Quantitative Easing work to better effect in the US compared to so far in Europe?


1 Answer 1


The ECB faces a unique challenge in that the Eurozone is a monetary union without a fiscal union. Because each country has autonomy over their own fiscal policy and there is no separate Eurobond, it is unclear which countries' bonds the ECB would buy to perform Quantitative Easing. In the US this is easy because of the presence of US Treasury Bonds that the Federal Reserve can readily purchase.

Also, since the Eurozone is composed of so many different economies, the main goal of the ECB is inflation control. It is extremely hard to set a blanket policy to cover the whole Eurozone when there are so many different economies in different states right now. Setting an interest rate very low or performing quantitative easing over the whole Eurozone, which is very hard because of the lack of fiscal union, would undoubtably be good policy for countries like Greece and Portugal, but would be the wrong policy for a country like Germany that currently has a strong economy.

  • $\begingroup$ If you would like more information on this I would recommend reading the paper "A Fiscal Union For The Euro, Some Lessons From History" by Michael Bordo et al. or David Marsh's book "Europe's Deadlock" $\endgroup$
    – Matt Dyer
    Jan 18, 2016 at 18:22

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