QE Won't Solve the Eurozone's Problems

The eurozone is in a dreadful mess. The currency area’s economy is stagnating: It grew by only 0.8 percent in the year to the third quarter of 2014 and remains 2 percent smaller than in early 2008. The unemployment rate is 11.5 percent. Deflation looms: prices fell by 0.2 percent in the year to December.

That last fact looks set to prompt the European Central Bank (ECB) to embark on a program of quantitative easing (QE) at its next meeting on Jan. 22. Since official interest rates are at zero and can scarcely fall further, ECB President Mario Draghi is counting on unconventional monetary policy to boost the economy and lift inflation back towards its target of “below, but close to, 2 percent.”