FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, comments that while ECB is working hard to eliminate financial market divergences through its QE, the macro-economic divergence will prove much harder to close.

Key Quotes

“It’s perhaps a little unfair to draw the same conclusions about the limits of QE like in Japan given QE in the euro-zone has only just got going. Nonetheless, the ECB itself acknowledges that QE can only go so far and that structural reform will be required in order to get the best benefits from easier monetary policy.”

“The employment data yesterday certainly highlights that. The euro-zone unemployment rate fell 0.1pt to 11.3% in February but still remains some 4.1pts above the cyclical low recorded before the crisis.”
“In the US, the 5.5% unemployment rate is just 1.1pt above the pre-crisis cyclical low.”

“The diverging trend highlights the ECB’s point of the importance of structural reform. The German unemployment rate fell to a new record low of 6.4%, highlighting the benefits of past reforms while in Italy the same rate there hit a record high of 13.0%.”

“While the ECB is working hard to close the financial market divergences, the macro-economic divergences will prove far more difficult to close. A weaker euro exchange rate will only offer so much support.”