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European Central Bank Launches Stimulus Plan

DAVID GREENE, HOST:

And some news this morning from Europe. With its economy threatened with recession and deflation, the Eurozone has finally embarked on a stimulus program that's much like the U.S. Federal Reserve's quantitative easing. That program is credited with helping the United States boost its growth rate after the great recession. NPR's John Ydstie joins me to offer some of the details here. John, good morning.

JOHN YDSTIE, BYLINE: Morning, David.

GREENE: So what exactly was announced this morning?

YDSTIE: Well, as with the Fed's program, this one involves massive purchases of government and private bonds by central banks in the 19 countries that use the euro. Mario Draghi, head of the European Central Bank, said the purchases will amount to 60 billion euros a month and run until September of 2016, or until inflation reaches a more healthy level of around 2 percent.

GREENE: And for those of us who are not economists, can you just remind us how bond purchases are supposed to, you know, help and boost growth and inflation?

YDSTIE: Well, when central banks buy these bonds they actually create money that's injected into the financial system. And all that money should reduce interest rates and spur borrowing and economic activity, creating jobs and consumer demand. As consumers start buying more goods and services there's upward pressure on prices, which should help boost inflation back to healthier levels.

GREENE: And are people optimistic that this will work?

YDSTIE: Well, there had been some concern that it wouldn't be large enough to be effective, but the 60 billion euros a month and the length of the program through September of 2016 make it actually larger than expected. One problem is that interest rates in Europe are already very low, so there's a question about whether pushing them down further will really boost borrowing and growth. And Mario Draghi reiterated again this morning that more needs to be done by individual governments to boost growth.

GREENE: Well, John, if there was desperation here - I mean, the United States concluded a third round of this type of stimulus last October. Why is Europe coming to this so late?

YDSTIE: Well, largely because Germany had opposed it. It saw the path to growth as through balancing budgets and restructuring economies. That hasn't worked so well. Now, partly because Europe experienced deflation in December, those objections have been overcome.

GREENE: And, briefly, I mean, are we going to feel the effect of this new European program here in the United States?

YDSTIE: Yes, anticipation of this has made the dollar stronger against the euro, which could hurt some U.S. exporters. But it's also contributed to lower U.S. interest rates, which is positive, and, all in all, it should help the global economy.

GREENE: All right, that's NPR's John Ydstie talking to us about a new stimulus program announced in the Eurozone this morning. John, thanks.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.

John Ydstie
John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.