The new ECB measures

My perhaps overly simplistic view is that unless some of the various electorates hate the announced measures, they are not enough.  An adequate response would be “we are going to raise the rate of price inflation, probably indefinitely, and furthermore countries x, y, and z have agreed they are not getting all of their money back.  They agree to pick up the check and their electorates hate this but accept it as well and furthermore all the politicians involved are telling their electorates the same thing that they say amongst themselves.  We also accept that weak lending to medium- and small-sized business represents a real competitiveness problem, a kind of Great Reset, and is not amenable to a simple monetary policy fix but we have to do something so we will try anyway.”

Obviously Draghi was in no position to make such an announcement.  I once liked the idea of a negative rate on deposits at the central bank, but I no longer do.  I think it will represent more of a tax on future lending than a spur to current lending.  Denmark once tried such a policy and it didn’t do much for them.  It is probably a one-off shot in the new “currency wars” but not a game-changer.  In any case total bank deposits held at the ECB are relatively small.

We’ll see what else Draghi announces later today.  European stocks are up, so it is hard to argue with this as an improvement over the status quo ex ante, which of course was terrible.  Still, I am not as impressed as are many of the people in my Twitter feed.


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