There was a time when central bankers in Europe and the United States behaved much like soldiers – always in step with each other. If the U.S. raised or lowered interest rates, Europe would quickly follow suit.
The days of monetary harmony are over. With their economies heading in wildly different directions, the gulf between the monetary policies of the world’s two most powerful central banks has never been wider.
While the United States has mostly recovered from the 2008 financial crisis, Europe is still reeling. Insiders at the European Central Bank figure the European continent is at least two years away from a solid recovery like that seen in the United States – and that recovery could yet be eroded if a crisis in Greece spreads to the rest of the continent.
The trans-Atlantic growth divide is widely expected to get worse before it gets better. Europe’s economic output, at around 1.5 percent, is likely to be about half that of the United States this year. The 19-nation euro zone’s unemployment rate, currently at 11.2 percent, is more than double that across the Atlantic.
After years behind the curve, the European Central Bank is finally reacting to the growing chasm. On Monday the Frankfurt-based ECB opened the monetary spigot further, launching a €1.14 trillion bond-buying program first announced in January and designed to pump cheap money into Europe’s economy. Interest rates in the euro zone were already been pushed to a record low of 0.05 percent in September.