The Eurozone is Now Effectively in the ICU Due to ECB Policy
The Eurozone is Now Effectively in the ICU Due to ECB Policy by London Paul – The Sirius Report
We have spoken for longer than we care to remember about the inept European Central Bank (ECB) policy which continues to see a stimulus program, otherwise known as QE coupled with ZIRP, which as we stated many times before wrecks economies if it is implemented for more than a few months.
The fact that there is a genuine belief that the ECB is unlikely to change its policies over the next few years and that the ECB believes that its stimulus program will drive an expansion in salaries and consumer spending growth beggars belief, given that they started it in March 2015, which has not had the desired effect and they are already tapering monthly purchases.
The spectre of the ECB balance sheet, which stands at nearly 4.4 trillion euros, looms large. The growth in EU economies is questionable given that they are essentially built entirely on a gigantic ever-expanding debt mountain. Whilst stock markets ride high, economic reality is beginning to bite, driven in part by lower wages in a notionally low inflation economy and entire generations becoming unable to afford to buy homes.
Quite how Draghi expects to see higher salaries in the near term due to negative and zero interest rates policies beggars belief. It appears to be a convenient excuse not to raise interest rates precisely because the economies in the euro zone are weak and once you have adopted QE and ZIRP for more than a few months you quite simply can’t raise interest rates because you will wreck the economy. However, this is a double-edged sword because if you maintain negative or low interest rates you also wreck economies as we are witnessing now.