| 10.6°C Dublin

Crunch ECB decision can only be part of the answer

The European Central Bank is quickly running out of options.

With interest rates at record lows, the reality is that there is only so much more that central bankers anywhere can do to stimulate economies. Printing €40bn or even twice that will only be a token gesture at this stage.

That is why the ECB has said repeatedly that what it decides over the next few months can only ever be part of the solution to Europe's woes.

A decision by the ECB today to begin printing money could plaster over the cracks in the European economy for a year or two but the reality is that we need what economists like to call structural reform.

In the real world, structural reform means changes to our welfare, pension and health systems so that they cost less and deliver more.

Flooding the system with yet more cheap credit could buy time but that time must be used wisely.

Quantitative-easing measures such as bond buying, which may be announced today, have the potential to give the continent's banks extra cash, which they will almost certainly want to lend to companies. Big companies could then borrow on the bond markets these days so the extra cash will probably flow quite quickly to smaller companies.

Whether the money will make its way to Irish companies and banks remains to be seen.

Economists at the ECB have been worrying for some time about the failure of low interest rates to push down rates here. We pay double what our peers in Germany pay for mortgages because banks have not passed on reductions.

Still, money printing will almost certainly benefit us in other ways.

As one of Europe's biggest exporters, we could see exports soar as the euro falls against the pound and the dollar. Expect to read many articles in the years ahead about how Ireland is regaining competitiveness.

Much of this improvement will be down to the falling cost of labour in this country relative to our biggest trading partners.

This can only be good for the economy in the long term.

Another benefit will come from inflation. The ECB is determined to generate inflation and prevent deflation.

That is no harm for a country like Ireland, which is drowning in debt.

It is a basic rule of thumb that countries with big debts want inflation, and the same applies to individual people.

The combination of high inflation and low borrowing costs is tailor made for this country.

Big decisions always have winners and losers.

The chances are that the ECB decisions will help us over the medium term - but won't be enough for Europe unless we reform our systems as well .

Irish Independent