Quantitative Easing Is Not Enough To Promote Strong Economic Recovery In Europe.

In the near future, the ECB may launch a quantitative easing (QE) policy to buy sovereign debt, but the final effect remains to be verified. If relying solely on the QE measures of the European Central Bank, it may not be enough to push the European economy to a strong recovery in 2015.

　　 Euro zone economy last year

Small increase

In the past year, unlike the United States that continued to reduce the size of the third round of quantitative easing, the euro zone has implemented an omni-directional loose monetary policy. In terms of capital prices, the ECB has reduced the main refinancing interest rate to 0.05% by two rounds of interest rate cuts, and the interest rate of overnight deposit instruments has dropped to -0.2%, opening the so-called "era of deposit negative interest rates". In terms of quantity, the European Central Bank has implemented a targeted long-term refinancing operation (TLTRO), which is characterized by "financing for loans". It is trying to encourage banks to increase lending to the real economy and start buying direct Assets Backed Securities (ABS) in the third round of the purchase of Covered-Bond.

With the support of loose monetary policy, the real GDP growth (GDP) of the euro area economy in the first three quarters of 2014 was 1.1%, 0.6% and 0.8%, respectively. According to the International Monetary Fund (IMF), the euro area economy in 2014 has achieved the first positive growth in the past three years, and the growth rate is expected to be 0.8%. But the eurozone economic climate index shows that the road to recovery in the future is not smooth. As of December last year, the euro area Manufacturing Purchasing Managers Index (PMI) fell 3.4 percentage points to 50.6 points earlier than the beginning of the year. At the end of the fourth quarter of last year, the utilization rate of manufacturing capacity in the euro area decreased by 0.4 percentage points to 79.9% in the third quarter, which also indicates the prospect of economic recovery is not optimistic.

It is noteworthy that deflation risks in the euro area are deteriorating. In December last year, the euro area consumer price index (CPI) fell 0.2 percentage points year-on-year, the first negative growth after the global financial crisis, and the producer price index (PPI) declined for the 17 consecutive month. The risk of deflation seems to be changing to a real crisis.

　　 Sovereign debt QE

Hard to promote stronger recovery

For suppression Deflation risk In recent years, the European Central Bank has actively explored the feasibility of directly buying sovereign debt of member states in recent years. Although the German representative of the Member States strongly opposed and many stranded, but recently the European Court for the direct currency trading plan (OMT) wording to increase the possibility of the implementation of sovereign debt QE, the Swiss central bank announced that the Swiss Franc decoupled from the euro, the Danish Central Bank cut interest rates, further strengthening the market for the European Central Bank recently launched sovereign debt QE expectations.

Regardless of the strength and implementation of the QE policy that the European Central Bank may implement, compared with the developed economies and the large scale QE that has been implemented in the United States, the author will have to question the market's view that the QE policy can save the euro zone. First of all, the sustained recovery of the US economy is not the result of QE alone, but the resultant of fiscal policy and monetary policy. However, the eurozone is suffering from the sovereign debt crisis, and the heavily indebted countries are tightening measures to rectify the financial sector. Other member countries have adopted corresponding preventive measures, which leads to monetary policy cling to the clap. Even large-scale quantitative easing policy is difficult to achieve the desired results.

Secondly, Federal Reserve After three rounds of QE, the market financing cost has been successfully reduced, which provides strong support for the recovery of the real economy. However, the monetary policy transmission mechanism of the European Central Bank is facing greater obstacles because of the fact that the euro area's fiscal and monetary policies are not unified and the market independence of member countries is strong. This is also an important reason why the European Central Bank has not implemented an overall easing monetary policy in the past year to effectively improve the euro zone economy. Against this background, the extent to which the ECB's QE policy can be achieved is not hard to imagine.

In addition, the US economy can get rid of the crisis and go back to the road of growth, and more importantly, it has successfully carried out the reform and adjustment of the economic structure. The underlying reason for the outbreak of the financial crisis is that the excessive industrialization of developed economies has led to the virtual economy being divorced from the real economy. The United States actively promotes the strategy of "re industrialization" to revitalize manufacturing and increase export trade. In the last 1~11 months, the total volume of US exports increased 2.9% over the same period last year, 1.4 times before the outbreak of the global financial crisis. Although Germany and Spain have implemented similar strategies of "re industrialization" and achieved good results, the problem of "Industrial Hollowing" is still serious. Generally speaking, there is still a big gap between the economic structure reform and adjustment in the euro area compared with the United States.

In this regard, relying solely on the European Central Bank's sovereign debt QE is not enough to promote a strong recovery in the euro area economy in 2015. Only the simultaneous implementation of the matching financial support policy, the repair of the failure monetary transmission mechanism, and the effective pace of economic restructuring are the key to its recovery.

　　 chinese enterprises Investing in Europe

We must guard against risks.

It needs to be pointed out that Europe, as China's largest trading partner, the largest technology supplier and the fourth largest source of investment, is one of the important overseas target markets of Chinese enterprises in the past, present and future. During the current global financial crisis and the continued deterioration of the European sovereign debt crisis, China EU bilateral trade and economic relations remained relatively fast overall. In the last 1~9 months, the scale of bilateral trade between China and the EU increased by 11.8% to 457 billion 110 million US dollars over the same period last year. By the end of 9 last year, the EU's investment in China increased by nearly 30% to 94 billion 860 million dollars compared with the end of 2010, and Chinese enterprises' investment in Europe has increased by more than two times, reaching 49 billion 10 million US dollars.

In recent years, the construction of China EU comprehensive strategic partnership has been accelerating, which has created a great opportunity for Chinese enterprises to invest in Europe. In addition to state-owned enterprises as the main force of the "going global" strategy, and continue to increase investment in Europe, more and more private enterprises have joined the European investment team. According to Deutsche Bank's statistics, from 2011 to 2013, the share of Chinese private enterprises in European mergers and acquisitions rose to more than 30%, accounting for only 4% of the total 3 years ago. With regard to the future, Chinese enterprises should pay close attention to the hot spot of European investment abroad, combine the favorable conditions of European economy to get rid of the crisis and the trend of recovery, take the main advantage of us and follow the trend, and increase the scale and scope of investment in Europe through a more diversified way.

In the short term, the risks facing European economic recovery can not be ignored. In particular, the continued risk of deflation may be the biggest test of the euro zone's economic recovery. Chinese enterprises in Europe should also further strengthen country risk management, rationally screen investment targets, and pay close attention to the potential risks faced by European asset quality, especially for assets related to the heavily indebted country bonds in the euro area, risk management and coping plans should be made ahead of schedule. Besides, Chinese enterprises should also pay close attention to the ECB's monetary policy. Once the sovereign debt QE is officially launched, the liquidity of the European market will still improve in general, and the stock market and bond market will rise in a short period of time.