The European Central Bank (ECB) and the national central banks of the Eurosystem have at last started buying bonds to "address the risks of a too prolonged period of low inflation". More realistically, they are addressing the potential disaster of a lengthy period of deflation. At this point, I could say, "I told you so", but I have not been alone in my call for the Eurozone and Germany in particular to wake up to QE and follow the examples set by the US and UK in revitalising their economies.
Hopefully, 1.1 trillion euros will be enough to restore the Eurozone to an acceptable level of inflation (around 2 per cent) as 60 billion euros a month flow in to free up cash for banks to lend, boosting economies and dragging inflation out of negative territory (currently -0.3 per cent).
But Germany's insistence that the Bundesbank will only buy up German debt is likely to have a negative impact and the stakes are high because deflation in the long term means that debts rise in real terms. Both incomes and profits wither as consumers dither about waiting for the next price cut instead of making purchases. Servicing debt gets more and more difficult, bankruptcies rise and lending contracts.
While central banks may decide to increase the flow of cash by penalising banks with negative interest rates for deposits held, even this strategy can produce an unexpected outcome as financial institutions and corporates generally may choose to stuff their money under metaphorical mattresses. It is essential that the Eurozone's deflationary cycle is curbed, as I am well aware that the corporate sector is also sitting on its hands, along with consumers.
Even at 1.1 trillion euros, there is unease that the long-awaited action by the ECB is too little too late and it is probably best to be cautious about these things anyway because QE can make it difficult to assess a bank's liquidity position in periods of stress.
Meanwhile, Germany has questions to answer. The country may not have much in common with Greece, but both can be accused of side-stepping the European experiment by deciding which bits they like and rejecting the rest. Personally, I don't believe Germany was ever a club player - it has a preference for everyone to do [as] it says and the German idea of risk is something that everyone else should take!
Certainly, banks across the Eurozone's southern nations will be watching closely to see how QE affects member states. It's worth remembering that the socialist revolution in Greece was created by an electorate that took to the streets in protest, a scenario that may have taken the pluck out of the Spanish.
As great realists, the Spanish are likely to have taken one look at Greece and decided not to bash an already bloodied nose into a brick wall. This is just as well, as while I can name a number of Spanish multinationals, I can't do the same for Greece. The names of one or two Spanish banks also come immediately to mind - not so with Greece - mercifully!
To sum up, there are still lumps and bumps on the horizon for the Eurozone and I am not being alarmist when I say that any form of derailment is a huge threat to the UK. Our fortunes will rise and fall on the back of our European trading partners and, unfortunately, a major incident could make the traumas of 2007 / 08 pale into insignificance. As the QE programme unfolds, I too will be watching closely.
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