Regular Triple Crisis contributor Gerald Epstein, of the University of Massachusetts and the Political Economy Research Institute, speaks with The Real News Network’s Sarmini Peries about the recent turn toward quantitative easing on the part of the European Central Bank—and why it is unlikely to be effective unless Europe changes course from policies that have undermined recovery in Greece and elsewhere.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
The ECB, European Central Bank, is printing new money and buying government bonds of European nations to stimulate the economy in the 19-member E.U. zone. Why are they doing this? Well, it is because the economies are not growing. And quantitative easing appears to be the answer. Is this a good thing for nations like Ireland, Greece, Spain, Portugal that have been suffering austerity imposed on them by the E.U.?
Now joining us from Amherst, Massachusetts, is Gerald Epstein. Gerald is codirector of the Political Economy Research Institute and professor of economics at UMass Amherst.
Thank you so much for joining us, Jerry.
GERALD EPSTEIN, CO-DIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thank you for having me.
PERIES: So, Jerry, is this good news for the nations that are suffering in Europe?
EPSTEIN: Well, it’s unlikely to have too much of an impact, actually. It’s taken them a long time to really move to this. The European Central Bank waited a very long time before doing this quantitative easing. The Federal Reserve did it several years ago. The Bank of England also did it several years ago. And the Eurozone, even without the problem of Greece, which is really compounding the difficulties tremendously—I can talk about that in a minute—the Eurozone is stuck in very low growth on the verge of recession. It’s mixed across the countries, but many of the countries of—the southern countries, as well as Ireland and other countries, have very low growth, very high unemployment. So the idea of quantitative easing is to try to turn that around. But I just don’t think that it’s going to work.
PERIES: Why do some economists believe that quantitative easing is the route to go, so much so that they actually implemented that right here in the United States?
EPSTEIN: Well, it made a certain amount of sense at the time in the United States. The big crisis that just hit, the banks were relatively insolvent. Interest rates were extremely high because of the high risk. So the quantitative easing early on made a certain amount of sense in order to lower interest rates to try to get the investment going and the economy going.
Even then, the impacts were fairly modest. I’ve done a paper with my graduate student Juan Montecino, and we’ve shown that the main impact of quantitative easing in the United States at that time, in 2009, 2011, was to raise bank profits and to raise stock market equity. And so it didn’t really help get the economy going that much. It sort of put a floor on how far down the economy could go.
But in Europe, the crisis has now going on for so long and the austerity measures have been so extreme, I mean, even more so, say, than in the United States, that monetary policy, quantitative easing in particular, can’t really move effectively against all of the headwinds. And then, on top of that, when you have the Greek crisis coming in, it’s pushing back so hard that it’s really unlikely the quantitative easing can do much.
PERIES: And so what could be another way of resolving some of the crises in Greece, Ireland, Spain, Portugal?
EPSTEIN: Well, let’s take the Greek crisis itself. I know you’ve had a lot on your show about this, good commentary about this. Today it’s really—just today it’s really hitting the fan, as they say. The Greek government has written a letter to the European Union saying, essentially, they’ve caved in to almost all of their demands, but in order to get a six-month extension, in order to figure out a solution out of this. But the German finance ministry is rejecting this.
The European Central Bank is a key player here, and it’s not exactly clear what they’re going to do. What they decide to do about Greece is infinitely more important than what they decided to do about quantitative easing, because if Greece—uncertainty about Greece increases, if there’s a run on Greek banks, if Greece in the end has to drop out of the Eurozone or is pushed out by the Germans, then managing the European economy by the European Central Bank is going to be extremely difficult. I think it’s very hard to predict exactly what will happen, but quantitative easing is really just a drop in the bucket compared to what’s going on in how they’re handling Greece.
Now, the European Central Bank has not signaled very clearly about how they’re going to handle Greece. They’ve just recently voted that they would provide a liquidity line to the Greek banks. They’re in a lot of trouble because people are taking their money out of the banks. But they haven’t signaled their clear intention to help Greece stay in the euro, despite the fact that the European Central Bank pledged to do whatever it takes to keep the euro strong, keep the euro going.
PERIES: So, Jerry, one element of the plan that Yanis Varoufakis, the minister of finance for Greece, had tabled is really issuing Greek bonds and the European Central Bank buying them. Now, this plan has been rejected by Germany. Is this a good thing, that they have tabled this?
EPSTEIN: It was more than reasonable. I mean, they were bending over backwards—I meanreasonable in the sense that they’re bending over backwards to try to meet what they perceive to be reasonable demands by the Europeans, but to give themselves some breathing room to respond to their constituents who put them into office. And the Europeans, especially the Germans and the Dutch, are really playing hardball. And one could even suspect that they’re trying to push Greece out of the Eurozone.
So today the Greek Party, the Greek government, even gave more concessions, and it still hasn’t been enough. So it seems to me that if the European Central Bank really wants to make its quantitative easing effective, then it has to help Greece reach a solution. And I think the European Central Bank is going to undermine any positive impact it could have from quantitative easing if it goes along with the Germans to push Greece out of the euro.
PERIES: Alright. We’ll be watching, Jerry. Thank you so much for joining us.
EPSTEIN: Thank you.
PERIES: And thank you for joining us on The Real News Network.
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