Macroscope | ECB has one last chance to save euro with bond purchases

After dragging its feet for the past five years, the European Central Bank has finally placed its ultimate policy bet with a government bond-buying programme designed to pump €1 trillion (HK$8.7 trillion) of new money into the deflated euro-zone economy.

Quantitative easing has finally arrived in euro land.

But it is far from certain that the ECB's cascade of cash can get the economy back on its feet. It is hard to shake off nagging doubts that it is all too little, too late to save the economy and the single currency. With political risks reaching crisis point again over Greece, another euro-zone hard landing could be on the cards fairly soon.

Global asset markets so far seem convinced of better times ahead. European government bond yields have sunk to record lows and stocks rallied to all-time highs. The euro was mauled following the ECB's decision, but this was little surprise considering the flood of new money due to hit the financial markets in coming months.

At first glance, the scale of the quantitative easing programme looks impressive. It aims to pump €60 billion a month into the economy between now and September next year. It looks good on paper, but the ECB has a lot of catching up to do on what could have been achieved if the move had been adopted much earlier.

Five years on from the start of the global crisis, the relative sizes of the US Federal Reserve and ECB balance sheets go a long way to explain why the US economy has fared so well and why the euro zone has sunk into a deflationary hole. It contrasts a wide gulf between policy success and failure.

The Fed was quick off the blocks to embrace quantitative easing, more than quadrupling its assets in the space of five years through its bond buy-back programme. It delivered a huge amount of cheap cash to consumers, businesses and investors, helping to spark economic recovery and hard-pressed financial markets to rally. A steady economic upturn and an extended bull run for stocks and bonds have put the US in an enviable position - and it is all thanks to the Fed.