Union International: Mario Draghi has finally deployed the full-blown quantitative easing program investors have been calling for.
Union International: After three years of playing for time and pushing conventional policy tools to the limits of their usefulness, Mario Draghi, last week, finally bowed to immense pressure and made good on his promise to do “whatever it takes” to save the eurozone from collapse.
Speaking in a post-rate decision news conference, Mr. Draghi announced that the central bank would begin buying up the sovereign debt of eurozone countries in the hope of increasing liquidity, encouraging banks to lend and business/consumers to borrow.
Solomon Roth, chief economist at Union International opined, “This isn’t going to work. It may very well have proven wildly popular with investors who will undoubtedly, over time, see the value of the assets they hold go up but as with the Federal Reserve’s efforts across the Atlantic, very little of this money will find its way to the real eurozone economy.”
The ECB program, which was launched despite barely-concealed opposition from Germany, will buy up €60 billion of eurozone sovereign bonds each month until at least September 2016 or until inflation in the region reaches 2%.
“We think the last thing the man in the street in Munich, Vienna or Paris wants right now is higher consumer prices but, in the weird and wonderful world of central banking, this is the new normal where higher prices are seen as boosting demand and ultimately benefiting an economy,” suggested Roth.
Union International says the news will ultimately be good for stocks in the region but warns investors that markets are due a sharp correction in the short term. “There is way too much complacency in equities at the moment and some of that shine needs to come off before we can resume the bull market,” concluded Roth.
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