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ECB Should Not Cancel QE

QE has floated the eurozone off the rocks.QE has floated the eurozone off the rocks.

With a liberal, pro-European Union centrist elected as president of France, populism has been defeated. Growth is stronger, and prices are starting to rise again. Investment is recovering, and stock markets across the continent are touching record highs. Even Greece is looking as if it might be able to stagger through the summer without provoking another crisis.

The eurozone is suddenly looking in a healthier state than it has at any time since the financial crash of 2008 and 2009—and despite the many, many false dawns over those years, investors might well be finally tempted by its undervalued equities, MarketWatch opined.

There is still one major problem to be faced, however. The European Central Bank looks likely to start winding down its €2.2 trillion ($2.4 trillion) program of quantitative easing. That would be a big mistake. It might have worked imperfectly, and with uneven results, but QE has worked. It has floated the eurozone off the rocks, and created the conditions for a durable recovery.

If the ECB needs QE forever, then it should keep it in place, because the alternative is another nasty crash. It is impossible to ignore the recovery in Europe.

After elections in the Netherlands, Austria and France, the eurozone does not look in danger of imminent destruction. No countries are about to suddenly flounce out of the single currency. Indeed, France’s President Emmanuel Macron looks intent on reforming the eurozone, so that it is less crushingly deflationary, and doesn’t simply rack up bigger and bigger trade surpluses in Germany.

He may or may not succeed with his plans for a single tax and budgetary policy for the zone—but at least he will have the momentum to move it in the right direction.

That comes against the backdrop of a steadily improving economy. In the latest quarter, quarterly growth for the eurozone as a whole came in at 0.5%, a stronger rate than for the UK or the US. Over the year as a whole, the economy has expanded by 1.7%. Inflation has risen to 1.9%—the threat of deflation has been seen off for now. The unemployment rate dropped to 9.5% in March, from 9.6% in February, and down from 10.3% in February 2016.

Those are certainly not spectacular figures, and there is no sign of a boom. But they are respectable—and more than enough to support the surge in the German DAX and France’s CAC-40 over the last few weeks.

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