The Wall Street Journal argues that the ECB's alternative to QE – supplying banks with unlimited funds on favourable terms – is superior to the Fed's and Bank of England's asset purchases on the basis that the effects are similar and the ECB will be able to exit the strategy without causing market disruption.

With due respect, the effects are not similar: the ECB's banking system loans have no direct impact on the broad money supply and may not even inflate the monetary base. The difference is highlighted by May monetary statistics. While UK broad money has risen at a 6.7% annualised rate so far this year – see yesterday's post – Eurozone M3 has contracted by 0.8% annualised.

Credit trends are weak in both economies: Eurozone bank lending to the private sector has risen by just 0.4% annualised so far in 2009. In the UK, however, QE has resulted in a large "public sector contribution" to monetary growth – equivalent to 4.9% of the broad money supply in the first five months. With the ECB relying on banks using cheap liquidity to buy government securities, the public sector contribution has been much smaller in Euroland – 0.9% of M3.

Eurozone M3 has also been depressed by a shift of funds into longer-maturity financial instruments to take advantage of the steep yield curve.

Current monetary trends suggest that the UK economy will recover from late 2009 while Euroland continues to flounder.