Only structural reform can halt Europe’s emerging bubbles

ECB policies are setting the stage for severe instability with a property bubble inflating fast in Austria, Germany and Luxembourg

The European Central Bank's latest policy moves have shocked many observers; while their goal - to prevent deflation and spur growth - is clear, the policies themselves are setting the stage for severe instability.

The policies in question include setting the interest rate on the ECB's main refinancing operations to zero; raising monthly asset purchases by a20bn (15.7bn) to a80bn; and pushing the interest rate on money that banks deposit with the ECB further into negative territory, to -0.4%. Moreover, the ECB has launched a series of four targeted longer-term refinancing operations, which also carry negative interest rates. Banks receive up to 0.4% interest on ECB credit that they take themselves, provided they lend it out to private businesses.

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