Displaying items by tag: ECB

(Berlin)

The future of the EU is an open question, and one that seems to be growing bleaker once again. Much of the cultural mood that preceded Brexit is now taking hold in Germany. German media is angry at the ECB about robbing its savers of income with very low or negative interest rates. News outlets refer to the “expropriation” of German assets (a term with huge historical resonance). Altogether, the German people are angry about their wealth funding the rest of an EU they see as squandering it.

FINSUM: Germany has benefitted disproportionately from the Euro as it keeps their currency artificially weak. Yet it is also true that hard working Germans have been subsidizing the irresponsible finances of southern Europeans for years. It seems a way off, but Germany could be the next EU domino.

(New York)

The ECB put out research today making an argument that we hadn’t heard very much—that any trade war would hurt the US most of all. According to the ECB, “if Donald Trump’s administration was to raise tariffs and other barriers on imports by another 10 per cent — and other countries were to retaliate — growth would drop more sharply in the US than in either the euro area or China” (quoted from FT). The ECB found that one year of heightened trade tensions could knock 2% off US GDP.

FINSUM: The analysis of the actual economic impact may be credible, but the ECB is totally missing the point about the China. The risk for them is not just economic, but social and political—because they have an unelected government, officials there are under extreme pressure to keep the people happy with economic growth.

(New York)

Investors look out! After years of booming asset prices on the back of extraordinarily loose monetary policy, everything looks like it is about to implode. Not only is the Fed hiking and looking hawkish, but the ECB is in the middle of a covert meeting likely about how to end QE. China also looks close to reigning in its economy. Altogether, the economy on which current markets have been built looks set for change, which might cause big problems for equity investors.

FINSUM: So far “normalization” of interest rates has been quite slow, which has let investors sort of ignore the process. If things start accelerating quickly, then markets may react very sharply.