Martin Wolf's piece in today's FT is coherent, predictable and above all - true. While he is quick to dole out credit to Draghi for taking such a step against the "sole, albeit significant" opposition of Weidmann, he is equally quick to point out that not only could this be too late a step but that still, it is too little. It is here that he makes the distinction of the monetary responsibility of the ECB and the political responsibility of keeping the eurozone intact.
The ECB's rationale may very well be to affect the transmission mechanism of policy through "Outright Monetary Transactions (OMTs)" and ensure that the heavy penalty of a "fear-of-break-up" premium is reduced. As obvious, this might turn out to be as far a conditional program as there can be which leads us to an eventual double-edged sword of an outcome post-program - Either the ECB stops buying sending markets into panic, or the ECB continues, which could lead to paralysis and disagreement in the union. Aggressive monetary policy is a no-go and German discontent is gathering intractable momentum. In layman's terms, the bottom line is:
ECB conditional bond buying with German opposition leads to eurozone forever.
This statement is false.
Here are a few charts on the EU mostly courtesy Eurostat over the past decade. Data is yearly.
1) This is the outstanding Money Supply (EUR trillions) tracked with the ECB main refinancing rate (currently at 0.75%). I've included M1, M2 and M3. For the euro area, the ECB's
M1 is basically all currency in circulation and overnight deposits.
M2 is M1 + Deposits upto 2 years maturity and those redeemable at a notice period of upto 3 months.
M3 is M2 + repos, MMFs and debt securities upto 2 years.
2) Here's World Bank data to compare (as a % of GDP), Capital formation and Household & General Govt. Consumption:
3) This, for the EU, is the unemployment rate with the trend in wage index (2005=100):
4) Here's what happened to the CPI-based Real Effective Exchange Rate and the % of GDP levels for trade. Note the significant appreciation for the first four years:
5) Finally, this is the common deficit level [RHS] (i've used absolute numbers so positive is basically negative) and the Maastricht debt levels for the euro area:
The problem is that EU faults are best observed either individual or grouped (core-peripheral etc.) countries. Even so, there are still some almost glaring trends in principal variables. More on this later.
The ECB's rationale may very well be to affect the transmission mechanism of policy through "Outright Monetary Transactions (OMTs)" and ensure that the heavy penalty of a "fear-of-break-up" premium is reduced. As obvious, this might turn out to be as far a conditional program as there can be which leads us to an eventual double-edged sword of an outcome post-program - Either the ECB stops buying sending markets into panic, or the ECB continues, which could lead to paralysis and disagreement in the union. Aggressive monetary policy is a no-go and German discontent is gathering intractable momentum. In layman's terms, the bottom line is:
ECB conditional bond buying with German opposition leads to eurozone forever.
This statement is false.
Here are a few charts on the EU mostly courtesy Eurostat over the past decade. Data is yearly.
1) This is the outstanding Money Supply (EUR trillions) tracked with the ECB main refinancing rate (currently at 0.75%). I've included M1, M2 and M3. For the euro area, the ECB's
M1 is basically all currency in circulation and overnight deposits.
M2 is M1 + Deposits upto 2 years maturity and those redeemable at a notice period of upto 3 months.
M3 is M2 + repos, MMFs and debt securities upto 2 years.
2) Here's World Bank data to compare (as a % of GDP), Capital formation and Household & General Govt. Consumption:
3) This, for the EU, is the unemployment rate with the trend in wage index (2005=100):
5) Finally, this is the common deficit level [RHS] (i've used absolute numbers so positive is basically negative) and the Maastricht debt levels for the euro area:
The problem is that EU faults are best observed either individual or grouped (core-peripheral etc.) countries. Even so, there are still some almost glaring trends in principal variables. More on this later.
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