EU finances look to be buggered, @UKIP

This piece from fullermoney reminds me of the story about the lodger, who makes free with the daughter of the house. H awakes to find a large rock on his chest. He chucks it out of the window the realises that there is a rope attached to a tender part of his anatomy.

The rock is the Eurozone and the rope is our EU membership.

I’m waiting for the rope to tighten.

 

What the ECB Moves Mean for the World

Here is the opening from this informative column by Mohamed A El-Erian for Bloomberg:

In announcing a new round of extraordinary measures to support the euro-area recovery, the European Central Bank is sending three loud and unambiguous messages. Their implications extend well beyond Europe.

First, it is committed to experimenting even more with its use of unconventional monetary policy, including by taking the deposit rate even more negative and starting a program to purchase asset-backed securities.

Second, it is positioning itself for full-scale quantitative easing — but on the condition that European governments show more flexibility on fiscal policy and put into place the structural reforms needed to support healthy growth.

Third, it isn’t too worried about a multitrack world of central banking, in which its policy loosening contrasts with moves by the U.S. Federal Reserve, the other systemically important central bank, to remove monetary stimulus.

The ECB’s moves come in the context of legitimate concerns about the momentum of Europe’s already-sluggish economic recovery. They are part of a broader policy framework with four main elements:

  1. Force down bond yields and interest rates, hoping that this supports jobs and growth by restoring proper credit flow throughout the monetary union.
  2. If this doesn’t work fast enough, repeat with more aggressive use of bond purchases, hoping also to promote export growth by weakening the currency.
  3. Pressure governments, both privately and publicly, to implement much-needed measures to promote growth and avert deflation.
  4. In all this, hope that the costs and risks of experimental monetary policies don’t overwhelm their benefits.

The success of the ECB’s strategy, and its impact on the rest of the world, depend heavily on the extent to which European governments do their part. And the longer these governments dither, the greater the risks.

David Fuller’s view

This is clearly a big monetary stimulus and Mario Draghi was considerably more outspoken in calling on EU governments to introduce policies which encourage GDP growth.  They have long heard this from every sensible financial commentator, to no effect, so how will they respond to Mr Draghi?  Favourably, I hope, although I would not bet on it.  Germany has yet to indicate that it will move away from its stance on euro-zone austerity.

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