€1.1trn QE gamble to help turbine makers

Europe is taking a €1.1trn gamble. On Thursday, the European Central Bank (ECB) kicked off a programme of quantitative easing(QE) to jumpstart economic recovery in the Eurozone.

This follows the UK and US, which both used QE after the 2008 financial crash; and Japan, which did so back in 2001. If QE has the desired effect in the Eurozone then wind manufacturers should feel the benefits. So what is QE?

In short, it’s the process where a central bank goes to the financial markets and buys large amounts of government debt using newly-created money. The theory is that this cash injection for financial institutions encourages them to lower interest rates, and puts more money into the system. This encourages people and firms to spend more, which boosts the economy.

The ECB has been looking to use QE since last year, to stave off the risk of deflation. This risk became reality in December when consumer price inflation in the Eurozone dipped to -0.2% after the oil price crash. The ECB plans to inject €60bn a month into the Eurozone every month until at least September 2016.

One of the main impacts of QE is that it would devalue the euro against other currencies and should boost Eurozone exports.

This would help manufacturers in the wind industry in continental Europe to compete against rivals in the US, Asia and non-Eurozone nations like the UK and Denmark. Heavy hitting Eurozone firms including Enercon, Gamesa and Siemens stand to benefit here.

Quite how this helps troubled nations like Greece, we don't know.

Of course, the flip side of cheaper exports is costlier imports. This could increase the costs for developers in the region, but we don't think it will. There is a wealth of expertise within the Eurozone, which means few developers are heavily reliant on imports in order to get their new projects up-and-running.

And again, Eurozone manufacturers won't be complaining. If it is less attractive to import projects then developers will buy more locally, which again boosts the firms we identified above.

Beyond exports and imports, the potential impacts of QE are rather more murky. QE has only been used a handful of times before as it is seen as the fiscal stimulus of last resort, and that means we can't be sure it will achieve its goal of kickstarting the Eurozone.

The theory is that QE should bolster the balance sheets of financial institutions and encourage them to lend money so businesses can invest in growing their operations. The difficulty in the Eurozone is that the EU is trying to boost 19 very different nations; and much of the QE funding could simply flow towards the financial institutions who are already financially strong, particularly those in Germany.

It is unlikely that this fiscal stimulus will mean major pots of money for wind businesses to invest in growing their operations. As we've said, QE is a gamble -- but it is a gamble the ECB has had to take.