Dr. Stephen Kinsella:

When one considers matters in terms of reaction functions, one sees that central banks never overreact; they always under-react. The ECB, because of its administrative structure, is sort of designed to under-react to everything, because it proceeds by negotiated consensus. While it does seem as though there is parity between member states in terms of the voting structure, in practice, the larger nations hold more sway, simply because they have larger shares within the ECB.

What was required to be done, first, was to change the president of the ECB. Second, the new president, after he was embedded, had to win an argument about the logic of introducing quantitative easing, and that all took time. We must remember, too, exactly as Dr. Gurdgiev said, that there were many different balance sheet expansion exercises going on in 2009 and 2010. In addition, there was no real certainty as to what the evidence was from the US case. Moreover, as Mr. O'Brien pointed out, the Japanese case up to 2010 was not exactly a great success. The logic of doing it, the evidence for doing it and the administrative structures to carry it out were just not there. In other words, the buy-in was not there.

For policies to be successful, they must be administratively possible, technically feasible and politically saleable. When it comes to considering the technical feasibility of quantitative easing in the eurozone, we must bear in mind that we are talking about a very fragmented capital market where everything basically works around the Italian bond market, which is used for everybody who has a liquidity hedge. When we look at the administrative structure of actually running QE, we see it has to be run through national central banks, which means there must be certainty that all those banks know what they are doing and how to do it. The institutional details really matter here. I was at pains in my note to get across the message of why the technical exercise is important and how, when one stares at these things for long enough, one begins to see the political, technical and administrative feasibility aspects.

On the question of whether the European agencies could have reacted faster, the answer is "Yes". Would it have made much of a difference if they had done so? Not really. The ECB spends most of its time telling us what it cannot do because of its legislative mandate. It cannot do monetary financing because of Article 123 of the Maastricht treaty. It cannot do this and it cannot do that. However, one of the things it absolutely is tasked with doing is maintaining a forward inflation rate of at or near 2%. Once that rate looked like it was dropping below 1%, the ECB had no choice but to act on its own forward guidance.