It’s more of the same in the euro zone.
It all goes bad until, finally, when it gets bad enough,
the ECB writes the check and buys the bonds of whatever nation is in trouble.
Along with the usual imposition of austerity terms and conditions.
When the US and Japan do qe, they purchase their own liabilities
(the Treasury and Fed, BoJ and MoF, are central govt agencies under control of the national legislature)
When the ECB does QE, it buys the bonds of the euro member nations.
This would be analogous to the Fed buying the bonds of US states with funding problems.
In the US the Treasury took on the bulk of the counter cyclical deficit spending, with the states taking on a bit.
In the euro zone, the member nations took on all of the counter cyclical deficit spending, and buried themselves.
Like the US states, and unlike the Fed and the ECB, the euro member nations are credit sensitive entities.
And they are way over the practical limits of what markets will fund when push comes to shove.
So now the ECB is, reluctantly and as a last resort, taking the ‘burden’ of that deficit spending from the national govts to keep them afloat. (and imposing terms and conditions of austerity)
And the way things are going it will ultimately have to take on a lot.
Looks to me like that means multi trillions, just like the US federal govt does for it’s currency union.
Operationally this is no problem.
But politically the ECB has a politically imposed capital constraint that will most likely need to be addressed before too long.
And based on the way China blew it’s lid over US style QE and debt ceiling discussions, the question is how it might react to euro style QE, ECB capital discussions or discussion of haircuts of China’s holdings?
And the fact that neither qe nor QE are inflationary as they don’t add anything to aggregate demand,
may again mean nothing to China and much of the rest of the world who continue to believe it’s some kind of reckless and inflationary money printing.