Europe’s QE Quandary

It’s the new conventional wisdom: When all else fails to make economies grow, create new money and buy government bonds. That’s the formula dubbed quantitative easing, or QE. Most economists think it helped keep the U.S. and the other countries that used it — Japan and the U.K. — from tumbling into a catastrophic depression. Will it work in Europe, too? The European Central Bank adopted the policy much later than its peers, after exhausting other options. It's been difficult for the 19-nation euro area to do the same thing, partly because of different interpretations of European Union rules.

ECB President Mario Draghi overcame German-led opposition on the bank’s Governing Council and embarked on a government bond-buying plan worth about 1.1 trillion euros ($1.2 trillion) in March 2015. The program was doubled in size after inflation remained far below target, and widened to include corporate debt. By the end of the following year, inflation was picking up, so the ECB planned to begin scaling back purchases from April 2017. Europe’s QE began six years after the U.S. started on its bond-buying, as the region’s fragile recovery lagged the rest of the world. It finally turned to QE after cutting its main interest rate below zero in 2014, the first major institution of its kind to ever try such a move. The ECB is also still providing cheap funding to any bank that needs it in its regular lending operations — a sort of temporary, on-demand version of QE. It began buying covered bonds in October 2014 — a type of debt secured by a pool of loans, such as mortgages — and added asset-backed securities later the same year.