Europe to stimulate more?

It has been reported in Bloomberg today that the European Central Bank (ECB) will step up their recovery plans.

It is expected that the ECB will increase their stimulus sometime this week.

The top up is expected to be  500 billion Euros, and will involve asset purchases.

This is after warnings that the European economy will contract by 8%-12% this year.

What is interesting about the plans is that:

1. In 2008, the ECB originally increased interest rates and were slower to start QE compared to the US and Chinese authorities. Germany in particular, due to their historical experiences with inflation, were worried about stimulus.

2. This time the ECB appears to be much more interventionist and ready to take early action.

3. France and Germany seem keen on burden sharing but not all European governments are happy with the plans. Hungary and some other countries are opposed to many of these plans, with Hungarian Prime Minister Viktor Ordan claiming that it will distribute more to richer governments and people than the poor.

4. European stocks, which haven’t performed as well as US equities for over 10 years now, might be boasted by these plans.

5. In 2008, China produced the biggest stimulus as a percentage of GDP compared to other big economies – even more than the US. That increased house prices and had several unexpected effects, even though the economy came back. This time, China has stimulated less. They have only announced a stimulus roughly equivalent to 2.5% of their GDP.

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