In spite of the European Central Bank's recent decision to leave its monetary policy strategy in place, speculation about expanded stimulus measures remain as the region struggles to overcome lingering problems.
Although typically intended to build confidence, the latest ECB press conference failed to alleviate rising concerns that efforts to combat deflation and structural problems such as high unemployment are falling flat. Although the ECB is fighting to restore growth and inflation to the eurozone, it is quickly running out of tools amid the absence of fiscal stimulus from member states.
The fact remains that borrowing costs for the region have never been lower, making it a perfect time to implement massive fiscal stimulus in an effort to correct continuing weakness. However, strict rules governing borrowing and enduring fiscal deficits continue to hamper any form of progress.
With the threat of a global deflationary wave encroaching on European borders, the ECB has worked tirelessly by implementing a number of aggressive measures to restore growth in consumer and producer prices. Despite its efforts, results have fallen well short of expectations, considering that annualized eurozone consumer price growth remains at a disappointing 0.10%, just shy of deflationary territory.
After taking the deposit rate into negative territory, a move intended to spur businesses and consumers parking cash to spend instead of save, the results haven't been forthcoming, adding to evidence that the ECB's measures are simply not enough. The introduction of asset purchases, a more extreme strategy for warding off deflation, has also shown limited efficacy.
However, the overarching concern with respect to asset purchases is the rapidly shrinking pool of available assets.
The main takeaway from the global monetary easing environment is that quantitative easing and asset purchases generally only work when one country is pursuing the strategy. In an environment where many advanced economies are loosening monetary policy in an effort to spur borrowing and devalue the local currency to stoke export growth, not every country can be a winner.
The ECB is just one of many central banks pursuing the same policy, reducing its effectiveness. Furthermore, the ECB's ambitious asset purchase program is already running into serious problems as the availability of sovereign debt and corporate bonds rapidly declines, specifically, the German variety.
With the region's central banks unable to purchase debt that yields less than the negative 0.40% deposit rate, the supply of eligible debt could very well be exhausted unless the ECB loosens its rules.
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