The weekly report issued by the "Qatar National Bank" (QNB) said that the European Central Bank faces an impossible task, which is to put in place a single monetary policy suitable for a diverse mix of countries going through very different situations.

The report added that the eurozone has always faced the challenge of being a monetary union without being a financial or banking union, so it lacks the necessary tools to deal effectively with shocks that strike the economy in a disproportionate manner across its member countries.

The report considered that the recent moves to allow the issuance of joint bonds are steps in the right direction, but they may not be sufficient to counter a major shock, such as that to European energy supplies due to the war in Ukraine.

The report assessed the level of economic activity and prices in the 4 largest economies in the eurozone: Germany, France, Italy and Spain.

He added that, according to the International Monetary Fund's forecast last April:

  • Only France and Germany may exceed the level of economic activity that prevailed before the Corona pandemic (2019) during the year 2022, but not by a large margin.

  • In contrast, Italy and Spain experienced a much larger decline in economic activity during the height of the pandemic in 2020, and will not reach the pre-pandemic level this year.


weaker performance than the United States

The report noted that the performance of the four countries is weak compared to that of the United States, but the contrast in the euro area is what is important for the European Central Bank because the Italian and Spanish economies are in a much weaker position in 2022, compared to the French and German economies.

He saw that the price level in Germany is much higher than in the other three countries, and pointed out that it is easy to notice that the rate of increase in prices - which is usually referred to as inflation - is generally in line with the inflation target by the European Central Bank, which is 2 % in France, Italy and Spain;

Therefore, neither the strength of the overall Eurozone economy nor the increase in prices (inflation) warrant a significant tightening of monetary policy.

Big shock to the power supply

On the other hand, the report stressed not to ignore the fact that Europe is experiencing a major shock in energy supplies, which is expected to lead to a significant weakening of economic activity and an increase in inflation that exceeds the expectations of the International Monetary Fund.


The report warned that Europe is facing a much worse stagflationary shock than the United States, due to the fact that energy prices in Europe have risen much more than they are in the United States, as European economies are major major importers, which makes the decision-making in the European Central Bank more difficult.

In light of these data, he emphasized that monetary policy in the Eurozone should be more supportive than in the United States.

Monetary easing and possible recession

The report pointed out that the outlook for the European Central Bank's policy is in fact much more accommodative than the expectations for the policy of the US Federal Reserve, especially after the Fed raised interest rates by 75 basis points.

Even with the slow pace of tightening, bond spreads in peripheral countries such as Italy, Spain, Portugal and Greece have come under pressure in recent weeks.

The report predicted that the eurozone would enter a recession, and that inflation would fall sharply later this year, while the European Central Bank would gradually tighten monetary policy.

However, the report indicated that the central bank would use asset purchases to support weaker peripheral countries, in an effort to avoid a return to the eurozone sovereign debt crisis.