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Governments Have Put the ECB in a Bind

Bloomberg, (2017), "Governments Have Put the ECB in a Bind", Bloomberg, 20 Μαρτίου

If you think it will be hard for the U.S. Federal Reserve to normalize monetary policy, spare a thought for the European Central Bank.

The euro zone's monetary guardians have said they will continue to buy 60 billion euros a month in government and corporate bonds until the end of 2017. Headline inflation is running at 2 percent -- the central bank's target is "close to but below" 2 percent -- and the bloc's recovery is finally under way. Soon the ECB will face the challenge of getting monetary policy back to normal.

In this it will have one advantage over the Fed: Europe's policymakers will be guided by the U.S. central bank's experience. This means the ECB's exit process is likely to follow the same sequence. First, scale back bond purchases; next, start raising rates; later, deal with the stock of bonds on its balance sheet.

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