With unemployment at 11.8%, GDP growth barely positive, inflation at a microscopic 0.7% and the ECB balance sheet a trillion euro smaller than it was in 7/12, Mario Draghi will finally engage in stimulative monetary policy. While buying sovereign bonds won’t happen, negative interest rates, purchases of bank loans and long-term loans to banks at low rates are likely. These steps will, at minimum, weaken the euro and boost exports.
Tag Archives: Mario Draghi
Daring Draghi
With Eurozone inflation below 1% and falling, and the money supply barely growing, the European Central Bank may have to become very creative to stave off deflation. Here’s why: while it might have authority to buy sovereign bonds, due to political considerations it would have to slavishly buy them in proportion to the economic weight of each country in the Eurozone rather than focus their purchases where deflation already exists.
Money for Nothing
In Europe, Mario Draghi, the head of the ECB, is flooding banks with a $1 trillion euros ($1.3 trillion) at 1% in an effort to recapitalize them and maintain liquidity. Many banks are using this money to buy sovereign debt that pays high rates of interest. Unfortunately, as was the case here with QE1 and QE2, the banks are not lending the money, resulting in a more severe European recession.