Quantitative Easing (QE) is emerging as the philosopher’s stone that might finally create credit at the stroke of a computer key and turn the global economy around. Sometimes it does feel like only magic will do the trick: with a precipitous decline in economic activity, a credit crunch that is now beginning to bite, and confidence in the financial sector still dangerously low, forecasts of a gradual recovery in the second half of the year start looking like wishful thinking. Even after several rounds of revisions, risks to growth forecasts remain clearly skewed to the downside. Against this background, the Bank of England (BOE) today launched its QE strategy with a very clear indication of how it will be implemented and why. The ECB instead emphasized the non-standard nature of the already enacted measures, especially the unlimited provision of liquidity against a wide range of collateral, and argued that such “credit easing” is better suited to the eurozone’s financial system and economy. ECB President Trichet said the ECB does not exclude further non-standard measures, but indicated that the Governing Council is not yet convinced that further measures are needed—which stands in stark contrast to the revised staff forecasts of a deep recession this year, zero growth in 2010, and a substantial undershooting of the inflation target in both years. Both central banks cut the policy rate by 50bp. For the BOE this was in our view the last cut, whereas for the ECB we will still expect another cut to 1.0%. At that stage the deposit rate— repeatedly emphasized by Trichet today—could be at zero, with shortterm rates close to it. In other words, the ECB could have a de facto ZIRP with the refi still at 1.0%. While the ECB has taken a significantly more dovish tone today, the BOE remains significantly more aggressive, and the difference in the two central banks’ attitudes could eventually determine how quickly the two economies will recover: the EUR is stronger in TWI terms than at the beginning of the crisis, whereas the GBP is 25% weaker—that is, more competitive. In the short term, we should see significant downward pressure on UK medium and long term bond yields and some downward pressure on short maturity eurozone market rates. I see limited further downside on sterling, as decisive policy action should start instilling some hope for an eventual recovery. Trichet indicated that support for troubled CEE countries would continue to be provided as and when needed, but without hinting at specific commitments, and without either confirming or ruling out the possibility of early ERM2 membership for some CEE countries.