The ECB is embarking on a large-scale sovereign QE programme against a backdrop of accelerating monetary growth, significant exchange rate weakness, fading fiscal restraint and a major terms of trade boost from the lower oil price. ECB policy was consistently too restrictive over 2008-12; it may now be making the opposite mistake.

The ECB will buy €60 billion of government and private-sector bonds per month from March 2015. Private-sector purchases have so far been running at €12 billion per month, so this implies government buying of about €50 billion, at least initially. The programme is “intended” to continue until September 2016 and “in any case” until inflation is judged to be returning to target; this phrasing allows for both an earlier or later end. 80% of the credit risk of the government bonds purchased will be carried by national central banks. The ECB simultaneously lowered the interest rate on future targeted longer-term refinancing operations (TLTROs) by 10 basis points.

A buying rate of €60 billion per month implies €720 billion per annum, or about 7% of Eurozone annual GDP. The table compares this with recent QE programmes in the US, Japan and the UK. The ECB’s buying rate is larger relative to GDP than the Fed’s during QE3 but much smaller than the Bank of Japan’s current pace.

The size of the programme, however, needs to be judged against existing monetary conditions. The ECB has already eased policy substantially, resulting in a strong acceleration in money growth. As the table shows, narrow and broad money are rising much faster than in Japan and the UK before their most recent major QE initiatives. Monetary trends are similar to those in the US when QE3 started.

The monetary pick-up suggests that economic prospects have already improved significantly. In addition, fiscal “austerity” is ending while the lower oil price is delivering a major boost to spending power. According to the IMF, the Eurozone “structural” budget deficit was cut by 2.5% of GDP between 2011 and 2013 but will decline by only 0.3% in 2014 and 2015 combined. If the current oil price is sustained, meanwhile, the Eurozone will enjoy a reduction in its import bill of about 1.25% of GDP in 2015.

The Eurozone economy, therefore, could rebound surprisingly strongly during 2015. Today’s ECB move may come to be seen as another case of policy-makers’ actions exaggerating the economic cycle rather than serving to dampen it.