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In the eurozone, QE serves an important purpose. The program allows the ECB to fund the big balance of payments deficits of member countries that pose a deadly threat to the existence of the grouping.
In the eurozone, QE serves an important purpose. The program allows the ECB to fund the big balance of payments deficits of member countries that pose a deadly threat to the existence of the grouping.

QE Falls Short of Expectations

Experience over the last nine years suggests that QE is not an effective policy instrument for central banks to achieve their inflation targets

QE Falls Short of Expectations

Almost all major central banks have employed quantitative easing, known as QE, during certain periods in the wake of the global financial crisis to revive their economies and reach inflation goals. QE means that central banks buy financial assets outright, mostly government bonds but also corporate bonds and in the case of the Bank of Japan even equities, to reduce interest rates and increase money supply.
However, QE has not fulfilled expectations of it so far. The size of the aggregate balance sheets of the US Federal Reserve, European Central Bank, Bank of Japan, Bank of England and Swiss National Bank quadrupled between the first quarter of 2007 and the third quarter of 2016. During the same period, however, the inflation rate of the Organization for Economic Cooperation and Development countries declined from 2.3% to 1.0%. Thus, the experience over the last nine years suggests that QE is not an effective policy instrument for central banks to achieve their inflation targets, Nikkei reported.
In the eurozone, however, QE serves an important purpose. The program allows the ECB to fund the big balance of payments deficits of member countries that pose a deadly threat to the existence of the grouping.
This is most obvious in Italy. When the Bank of Italy purchases Italian government bonds under the ECB's Public Sector Purchase Program, it creates reserves for the commercial banks, which in turn create deposits for the sellers of the government bonds. If the deposit holders do not trust Italy's banks, money leaves the country, mostly to Germany, which is seen as a safe haven. 
Italy incurs a balance of payments deficit due to short-term capital outflows, while Germany records a surplus due to the inflows. In a fixed exchange rate system under the gold standard, Italy would have to transfer gold reserves to Germany to settle the imbalances.
No Transfers in EU
In the eurozone, no gold or other assets are transferred when balance of payment imbalances emerge between countries. When there are more money outflows from a country than inflows due to deficits in both the current and capital accounts, the respective central bank is debited with the amount in the eurosystem's interbank payments system, called Target2. Correspondingly, the central bank of the country receiving the money inflows gets a credit in this amount.
There are no limits to the amount of debits and credits that can be incurred, and there is no interest associated with accumulating debits, because the rate of the ECB's main lending facility is applied, which is presently set at zero.
The system is like, where one customer postpones payment and the other prepays for future consumption. In theory, one country can run a deficit and the other a surplus in their respective balances of payments forever. In practice, however, a balance of payments deficit means that a country is economically and financially in trouble and may not be able to continue being a eurozone member for long. 
Safe Haven
During the euro crisis, Italy's liabilities in the Eurosystem rose from virtually zero in 2010 to a peak of €285 billion ($305 billion) in 2012. During the same period, Germany's claims on the eurosystem rose from about nil to €750 billion as other eurozone countries also incurred high balance of payments deficits. Following the assurance of ECB President Mario Draghi to do "whatever it takes" to defend the euro, Italy's liabilities declined to €142 billion by the middle of 2014.
However, when the ECB introduced QE in 2015 they began to rise rapidly again, reaching €363 billion last November. And Germany's claims, which reached €754 billion last December, moved inversely to Italy's liabilities. Thus, it seems that a lot of holders of Italian government bonds have used quantitative easing to cash in the bonds and move the proceeds to the safe haven of Germany.

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