In the space of a week, a flurry of monetary policy moves have managed to catch financial markets asleep at the switch. First came the Swiss National Bank, which suddenly abandoned the Swiss franc's costly peg to the euro. Next, it was the turn of central bankers in Turkey, Denmark and Canada, all of whom (along with the money-minders in India and Peru earlier), cut interest rates unexpectedly in the face of falling inflation and stumbling economies.
Then along came European Central Bank chief Mario Draghi with the biggest shock therapy of all to combat the rapidly growing threat of economy-crippling deflation – a bond-buying binge with more than a whiff of desperation about it.
Unlike the other central bank actions, market watchers were ready for the ECB's well-telegraphed, mandate-bending foray into quantitative easing. But they were stunned by its magnitude, which exceeded estimates of monthly asset purchases by about 20 per cent. Still, it was a long time coming. Which raises serious questions about whether the central bank has taken too long to deploy the last heavy weapon in its arsenal, even once it became obvious that interest rate cuts and other measures to stimulate bank credit weren't working.
Former U.S. treasury secretary Larry Summers certainly thinks so.
"I am all for European QE, but the risks of doing too little far exceed the risks of doing too much," the Harvard University economist said during a panel discussion at the World Economic Forum in Davos. "Deflation and secular stagnation are the macroeconomic threat of our time. That said, I think it is a mistake to suppose that QE is a panacea or that it will be sufficient."
The ECB plan calls for asset purchases totalling €60-billion ($84.5-billion) a month through at least the first three quarters of 2016. That includes an existing program of about €10-billion a month to buy covered bonds and asset-backed securities.
The ECB's version of QE would pump slightly more than €1.1-trillion into the financial system and balloon the central bank's balance sheet by about a third.
With any luck, some of that money may find its way into the broader economy. Even if it doesn't, lower bond yields will make it easier for governments to raise capital and the weaker euro ought to help struggling exporters.
The bond-buying program could run even longer if euro zone inflation still isn't heading back toward the central bank's target of just under 2 per cent.
Considering the long-standing opposition of German officials and other conservative voices on the ECB's governing council to any further expansion of the bank's balance sheet, Mr. Draghi's ability to win approval for such bold intervention is a testament to his perseverence and negotiating talents.
It's also a clear signal of how rapidly the embattled region is sliding toward a nightmarish future of deflation and economic decay.
Plenty of critics rail against QE, even when it appears to work. Their main argument is that such schemes do more to inflate equity and real estate assets than aid recovery of the broader economy. And they fret that such easing distorts long-term interest rates and will fuel inflation down the road.
But for many others who have been watching the euro zone mess for years, it's better than having monetary officials sit on their hands while the whole edifice comes tumbling down around their ears.
"QE is not a silver bullet for the euro zone's many problems, but it should provide some limited help to growth by adding to the stimulus that is already coming from very low oil prices and the markedly weaker euro," says Howard Archer, chief European economist with IHS Global Insight in London. "However, these stimuli can only go so far in helping the euro zone to grow."
What's really needed, as Mr. Draghi has long argued, are structural reforms to boost competitiveness and productivity across the region.