The US, UK and some Euro-currency nations have been pressuring wider Europe and mainly Germany (most other European nations are too deeply in debt to bail-out one another) to buy Greek and other government bonds: to lend them more Euros. The intent is that the European Central Bank (ECB) or the European Financial Stability Facility (EFSF) would purchase debt:
That would require more money to achieve than is available. Some have proposed that the only solution is for the ECB to “print” more Euros to purchase that debt: pan-European QE to emulate US federal QE.
The purpose of European quantitative easing would be:
For QE to succeed it must be implemented unhesitatingly and immediately at the very first sign of collapsing market confidence. Hesitation destroys confidence. Usually only the first round of QE has much, if any, desired effect. Second and subsequent rounds of QE confirm QE doesn’t work (but that’s another story).
Sentiment can’t be bought: it is felt. It is now probably too late to reverse snowballing negative sentiment, and Europe has probably hesitated for too long. Collapsing European sovereign bond prices betray rapidly dwindling sentiment.
Quantitative easing is designed to make people feel better, but only in the short term, before the next elections. Printing money temporarily makes people feel wealthy, indirectly enhancing confidence and sentiment, which is what some authorities hope to achieve. But wider collective market sentiment can’t be so easily fooled, because it is clear that the lack of confidence is based on a more profound real economic problem than sentiment. The problem is not negative sentiment, it is the reason for negative sentiment. Negative sentiment is the indicator of the problems.
The Global Financial Crisis and the European sovereign debt problems were not caused by a lack of money. Therefore, printing more money can’t solve the core problem, because the problem was not a lack of money. The problem is debt: people who’ve spent more than they have and more than they are likely to earn. Repeatedly giving money to bankrupts is a superficial way to help a bankrupt, akin to giving narcotics to an addict to solve their problem. They feel better; the donors feel better; but they aren’t better: they’re worse.
Quantitative easing ultimately causes inflation. Printing too much money causes hyperinflation, as Zimbabwe did, and as the German Weimar Republic did, and as other destroyed economies did. Destroyed economies foster political extremes. Quantitative easing defers and amplifies economic problems; an ideal solution for governments focused only upon the next elections. They perceive that it works only during the small number of years before the inflation becomes apparent: during the window of opportunism.
The failed German bond sale in November 2011 only reconfirms that. The lack of market confidence was not in Germany: it was in Germany’s currency, for the reasons above, and others.
I gratefully acknowledge the following sources which have contributed to my thoughts above. Jim Sinclair's Mineset, Guildinvestment, Business Insider.