The central banks of Europe and the U.S. are on different paths: The U.S. Federal Reserve is ending its quantitative easing program because it worked; the European Central Bank is considering starting such a program because the eurozone economy needs a boost to avoid sliding into a recession.

On Oct. 2, Mario Draghi, president of the European Central Bank, outlined a two-year quantitative easing plan to buy up to $1 trillion in private-sector credit. But the move was delayed because of opposition from the president of Germany’s central bank.

Though they both have emerged from the global downturn, the U.S. and the eurozone are now in very different situations. The U.S. needs to pull back from economic incentives to prevent its economy from overheating; Europe needs to go full throttle to avoid a recession and deflation. U.S. unemployment is at 5.9 percent and its 2014 growth is forecast to be 2.8 percent. In the eurozone, unemployment remains at about 11 percent and its real gross domestic product is stalled near zero.

Germany’s main economic index has declined 2 percent, France’s was down 2.8 percent and Italy’s, 3.9 percent.

Stefano Micossi, the director general of Assonime, an Italian business group, summarized the problem: “Nobody’s hiring, nobody’s investing and nobody’s spending.”

This is one reason Draghi is pushing to start quantitative easing, or QE, in Europe. “Quantitative” refers to the creation of money. “Easing” refers to adding reserves. It is a way that central banks stimulate their economy by buying debt, flooding financial institutions with capital to encourage them to lend. The U.S. Federal Reserve’s QE program has expanded its portfolio to $4.2 trillion in Treasury and mortgage-backed securities from less than $1 trillion before the 2008 crisis.

Another benefit of QE would be to reduce the value of the euro. A cheaper euro would stimulate the region’s economy, making its goods and services more competitive and reducing its imports. It also would increase inflation.

Why would Draghi want to increase inflation in Europe? The eurozone’s annualized inflation now is 0.3 percent. Economists generally believe that 2 percent inflation is necessary for sustained growth.

Even though quantitative easing in Europe would reduce exports from the U.S. as well as everywhere else, American policymakers like the plan.

Stephen Cecchetti, former chief economist at the Bank for International Settlements, explained that the U.S. wants the European economy to be healthy. “It’s going to create some instability, but the alternative is worse. You don’t want to be around if there’s a real depression in Europe.”

But could Draghi’s quantitative easing plan be just a ploy?

The threat of such a plan could pressure German policymakers to abandon their opposition to budget deficits that exceed eurozone targets. Some believe that the German insistence on austerity — a strict adherence to balanced budgets by European countries — is hurting the region’s growth and recovery.

What monetary steps has Draghi taken to date?

On Sept. 4, he cut interest rates to .05 percent. He forced Europe’s banks to pay 0.2 percent to park their money. This so-called “negative” deposit rate, instituted in June, has pushed some market interest rates below zero. All of these steps are designed to increase lending, and growth.

But Draghi also points out that his monetary steps cannot work in a vacuum. At a Federal Reserve conference in Jackson Hole in August, he complained about the impediments to entrepreneurship that still plague many eurozone countries. In addition, while most labor and fiscal problems are the responsibility of individual countries, he says more management of demand is needed at the regional level.

Europe needs to pursue Draghi’s recommendations.

The U.S. is doing relatively well. As PNC economist Stuart Hoffman said, “I think we have finally reached that promised land of self-sustaining, self-reinforcing economic recovery.”

It will be especially encouraging if the U.S. can keep its momentum after the Fed raises interest rates and eliminates QE.

If Europe is unable to shake off its economic malaise, the result will have ominous implications for the U.S.

Originally published in the Sarasota Herald-Tribune