DEUTSCHE BANK: The ECB is on course to destroy the eurozone
Will Martin
BusinessInsider.com
June 8, 2016
The European Central Bank risks tearing the eurozone apart for the sake “of short-term financial stability,” and the ECB needs to reverse course before it is too late, says Deutsche Bank.
A new note from the bank’s group chief economist, David Folkerts-Landau, says that the ECB has gone badly off course and needs to correct itself before it makes some “catastrophic” mistakes.
That correction should come, Deutsche argues, in the form of abandoning the bank’s negative interest rate policy (NIRP) and stopping the mass bond-buying it has undertaken in recent years.
President Mario Draghi and other senior staff at the ECB are already causing the central bank to lose credibility in both the markets and with the general public, and is hurting savers, says the bank. Here’s the quote (emphasis ours):
Already it is clear that lower and lower interest rates and ever larger purchases are confronting the law of decreasing returns. What is more, the ECB has lost credibility within markets and more worryingly among the public.
But the ECB’s response is to push policy to further extremes. This causes mis-allocations in the real economy that become increasingly hard to reverse without even greater pain. Savers lose, while stock and apartment owners rejoice.
Worse, by appointing itself the eurozone’s “whatever it takes” saviour of last resort, the ECB has allowed politicians to sit on their hands with regard to growth-enhancing reforms and necessary fiscal consolidation.
Thereby ECB policy is threatening the European project as a whole for the sake of short-term financial stability.
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