As eurozone , the 18 members bloc, is facing difficult times, all eyes are set on the new set of unorthodox measures that is likely to be introduced next Thursday by the European Central Bank (ECB) to boost the economic growth across the single-currency area which has come to a halt in mid-year before the recovery.
Among the 18-member nations of the eurozone, Ireland is the only country which is doing better economically than most of its member counterparts. But if Ireland is excluded the wide scenario of the eurozone is stagnant and need an urgent overhaul.
ECB head Mario Draghi, who is the most powerful policymaker in the eurozone , had signaled about such economic reformative measures at a meeting of central bankers that ended last weekend.
The ECB boss had expressed his willingness before the other central bank heads to do maximum to prevent Europe getting sucked into the trap of financial crunch. He told the bankers that the ECB would soon bring corrective economic measures to save Europe from meeting the fate of Japan, which has been in the deflationary trap for more than two decades.
Draghi’s ambitions to save eurozone from another economic turmoil has increased hopes among the member countries that he will come up with new record of reformative measures as early as next Thursday during the first meeting of governing council of the bank after the summer break
According to the official figures, the eurozone economy has been in bad shape as it has shrunk marginally over the past three years.
The consumer price inflation continues to decline and it’s now moving further from its target level of close to 2 percent year on year. Experts contribute the chronically weak state of demand as the most obvious reason behind the declining trend.
The rate of inflation in the eurozone continued to decline in August to 0.3 percent from 0.4 percent last month. While the unemployment rate also hovered near record levels in July after remaining stuck at 11.5 percent.
In such a gloomy scenario, speculations are looming large over what’s on Draghi’s mind boost the economy of the eurozone.
Financial experts say the ECB head may come up with a form of “quantitative easing or QE”, a measure that has been incorporated by the central banks of many countries, including the US, Britain, Japan and Switzerland, to fight the recession.
In the quantitative easing measure, the central banks purchase financial assets , usually sovereign bonds, to lower their yield, in simpler terms their rate of interest.
The lowering of yields or rate of interest makes the financial assets less attractive to investors and pushes them to purchase the higher-yielding assets like the corporate bonds.
If they engage in the buying process in large numbers, the process will lead to fall of yield on those assets, making them cheaper for companies. This will in totality encourage more investment in real terms in the economy.
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