As the Euro Zone crisis continues to drag on, market analysts and investors are becoming increasingly skeptical that the European Central Bank’s (ECB) monetary tools are losing its power. The ECB is expected to keep Long Term Refinancing Operations (LTRO) rates at the same level despite inflationary pressure in the Euro Zone economies. Down grade of Spanish debts recently by Standard and Poor’s and the on-going elections in France and Greece also creates volatile uncertainty in the market further reducing the impact of ECB’s decision to bolster Investor confidence.

The ECB’s 3-year LTRO, started in December 2011 has already been through two rounds and have been welcomed by analyst as an important mechanism to ensure liquidity to banks in troubled regions. However, data has been much weaker in 2012 and eight Euro Zone countries are in recession. Given the political scenario, it is unlikely that further political dealings to force austerity measures on countries will work.  The ECB’s decision to lower rates therefore will not have much power and therefore are in a wait and see mode.

What the Euro Zone needs to do is encourage growth as opposed to focusing on austerity measures. Although government debt is a problem, the United States is outpacing Europe in their recovery despite its tremendous debt. The US job market is recovering and the economy is expected to grow at a moderate rate of 2.2% this quarter.  What has worked for the United States is its focus towards boosting business investments and consumer spending by keeping interest rates low and quantitative easing. The focus on market fundamentals as opposed to pushing for structural reforms seems to be the key. Following the elections in Greece and France, and the realization that ECB’s policy tools are not as sharp anymore, it is likely that politicians will focus more on growth through building market confidence and providing a good business environment. A growth focused approach has worked for the United States and the Euro Zone’s lesson shows that a structural reform in an economy during hard times is counterproductive.