ECB Printing 60 Billion Euros A Month

ECB Printing 60 Billion Euros A Month.

European Central Bank (ECB) chief executive Mario Draghi, has confirmed in his press conference this afternoon at the World Economic Forum in Davos, that the ECB will break its golden rule and stimulate economic recovery in Europe with quantitative easing.

€60 Billion Bond Buy Back Per Month

It’s like discovering a ‘Klondyke’ Gold Rush every few weeks. This is drastic action to prevent negative inflation i.e. deflation. All governments worst fear – where goods are falling in price meaning they are cheaper and cheaper each week meaning people stop spending because they can get it cheaper ‘next week’.

Mr Draghi announced today that the ECB would buy back European Central Bank “bond” debt at a rate of €60 billion per month. This will continue until September 2016 or when Euro inflation hits 2%pa if sooner.

This means that €60bn of new money will indirectly be pumped back into the economy, by technically devaluing the Euro as there is more or the around. This is over €1.1 trillion of Euros to be pumped into the Eurozone, but the debt burden will be shared by all, but no real details yet of who is picking up the ‘tab’.

Indirectly, this will reduce the cost of borrowing in Europe. Interest rates will fall even further and your trip to Spain or France cheaper.

The Euro has already fallen massively and western stock markets, whilst already expected some QE, jumped even further on the confirmation of €60bn per month, which is some €10bn per month more than many expected.

Comment

We actually see this is a true rebasing of the Euro economies. With the exception of Germany and France, many of the ‘Latin’ nations were historically cheaper as well as the new ‘eastern’ European entrants. That said, the whole of Europe, including France and Germany must change.

What we expect:

UK and US stock markets to rise.

£ pound to strengthen against the Euro. Your holiday money will go further.

EU economies will slowly pick up, UK growth will continue on the back of this as Europe is our biggest trading partner.

Wages and property prices will rise in UK and eventually in Europe.

Long term, expect an inflation bubble in a couple of years’ time. We are quite literally moving back to ‘boom and bust’ economics. Expect another recession in around 10 years.