A lot of money is being bet on the success of the European Central Bank’s quantitative easing policy. As you probably already know, the ECB has indicated that they will be pumping 1.1 trillion Euros into the broader Eurozone economy by buying up public and private bonds. There are still a lot of debates among economists whether quantitative easing actually works.
However, if you are just going to look at the current business activity in the Eurozone, it would appear that things are improving. The composite PMI has had an 11 month high. German services PMI also showed a robust improvement from previous periods. It appears that whether you are looking at Germany, Ireland, Spain, or France, the Eurozone business sector will always show some signs of recovery. Whether this recovery will continue to improve, the effects of the quantitative easing seep into the broader economy remains to be seen.
Regardless, expect these healthy economic figures to be used as an evidence by backers of quantitative easing policies. These quantitative easing fans only need to point out to the United States an example of the virtues of this form of central bank economic intervention. While it is easy to pop champagne bottles and declare victory, keep in mind that these quantitative easing schemes have unleashed a huge flood of liquidity into the market. This may have created a stock market bubble that may end very badly.
I don’t mean to be all doom and gloom but one can’t help but feel scared of the current equities market bubble. There might not be a global reserve bank with the power and clout to bail out the current market.