ECB Policy versus an Oil Shock

The European Central Bank has been criticized for reducing interest rates too slowly during the Great Recession and up to perhaps 2014. 

In particular, the ECB is blamed for prompting a recession with a 0.5 pp rate rise in 2011, which was reversed a few months later.  The Euro Zone suffered one of its longest lasting recessions subsequently.

In the broader sense, the data support criticism of the ECB.  Compared to the US Federal Reserve, the ECB reacted much more slowly to changing circumstances.

Euro US Discount Rates.JPG

Having said that, the world was facing an oil shock resulting from the Arab Spring.  Oil spend as a share of GDP from mid-2011 was more than ample to prompt either secular stagnation, as experienced in the US, or outright recession, as seen in Europe.  

Oil Consumption Percent (April 2018).png

The difference between the US and Europe, of course, was US shale oil production.  While Europe was forced to reduce oil consumption to re-balance current accounts, the US was able to achieve a similar effect through import substitution -- by producing its own oil.

Thus, while the criticism of the ECB has some merit, the more fundamental problem was an oil shock (really, more a chronic shortage) lasting from 2011 to mid-2014.