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There has been a huge difference in the approach to the financial crisis between the United States and Europe. Where as the United States (read: the Fed) immediately started flooding the monetary system with newly printed money, the ECB held back and watched the 17 (!) governments sort it out.

United States

A lot of economists disagreed on the quantitative easing programs of the Fed but there's no denying that the US economy has recovered remarkably since QE1 first was initiated in November 2008. It remains

(click to enlarge)United States GDP 2004-2012

to be seen whether the economic revival could have occurred without the ongoing robust growth in emerging markets, but compared to Europe, the US did a far better job.

Europe

The European governments wasted a lot of time by not taking the bull by the horns. A split-up between Northern (Germany, Holland, Finland) triple A countries and Southern "Garlic" countries (Spain, Italy, Portugal and Greece) led to an almost impossible situation. Where the strong nations of the Eurozone demanded severe austerities, the problem countries were begging the ECB to support their treasury bonds in order to keep their interest rates manageable and access to the capital market ensured.

(click to enlarge)Eurozone GDP not recovering

Eurozone GDP not recovering

Now, 5 years later, Europe's still a mess. Youth unemployment in Spain is 50%, car sales even in an economic strong country like the Netherlands plummeted in Q1 2013 by 31% on a year-to-year basis. Only a few of the 17 members are able to achieve the 3% deficit standard.

What should the ECB do?

Latest economic figures (PMI, business confidence) show that the German economy is about to fall into recession:

-German PMI came in at 47.9, was below 50;

-German IFO Business Climate Index sank for the second month in a row.

Germany is suffering from the still ongoing drop in demand in Europe and the growth in export to emerging markets is no longer capable of offsetting the European fall-out.

Where Americans boosted their internal demand with QE programs, the austerity programs in Europe did their devastating work: demand for cars and houses collapsed, companies are holding back investments and governments economize where they can.

If internal demand keeps on falling, Europe will never be able to struggle itself out of the economic crisis. The ECB should, just like the Fed did, give the governments more support. Employment is the key to consumer spending and governments should be investing in job programs rather than depressing people by more austerity. Low interest rates are pretty for banks but should be passed on to individuals and small businesses.

Risks for the ECB

The biggest risk the ECB is facing is inflation. Unlike the Fed, the ECB has only one task: guarding price stability. The Fed is also responsible for overall employment. Because of the fact that the biggest contributor to the Eurozone, Germany, has a history of hyperinflation, German Central Bankers are quite hesitant to monetary easing.

Another risk the ECB is seeing is that when they start easing, governments will no longer see the urge of getting their expenses under control. Countries like Italy and Spain have some serious reforms to do. If enough money can be acquired from the ECB, politicians could be reluctant on further reform programs.

For investors in European shares, ECB action would support stock prices on two occasions:

- Monetary easing by buying treasuries would eventually benefit all asset classes (look at the U.S. and Japan);

- A weaker Euro would benefit European exporters and therefore indirectly support stock prices

Looking at the past, the United States always managed to get out of an economic crisis. By monetary easing and hence devaluing the dollar, exports helped the economy back on her feet. The Europeans should respect and learn from that.

Source: Europe Vs. America: ECB Should Listen To The Fed