If ECB’s original QEs stimuli had not been distorted by credit risk weighted bank capital requirements, there would be much less need for additional QEs.
Sir, Claire Jones writes: “EU treaties prevent the ECB from financing member governments by buying their debt, a tactic known as monetary financing. This rule aims to protect the central bank from political pressure and avoid stoking inflation. QE involves the central banks of eurozone states buying huge amounts of government bonds, financed by the ECB”… [Is QE legal?] “ECB argues that QE does not amount to monetary financing as it is only buying the bonds in secondary markets from other investors, rather than purchasing the debt directly from governments”, “Easing German constitutional court to rule on ECB bond buying” July 31.
Sir, as clearly the intent of ECB is to help financing member governments, and “stoking inflation” a publicized goal, I must say that sounds like a real weak defense.
But be that as it may, the question is also whether QE really helps the recovery in a sustainable way? ECB’s still so large outstanding ECB holdings of European sovereign debt suggest it does not.
The main explanation for that is to be found in the many dangerous distortions in the allocation of bank credit that the risk weighted bank capital requirements produce.
Just an example, currently all Eurozone sovereigns, courtesy of EU authorities, have been assigned a Sovereign Debt Privilege of a 0% risk weight, and this even though not of them take on debt denominated in a currency that is their own printable one.
The sum of QEs, plus that regulatory favoring, basically premised upon the notion that European government bureaucrats know better what to do with money they are not personally responsible for than for instance European entrepreneurs is drowning Europe in way too much statism.
For the European Union to be saved financial power has to be taken away from its sovereigns (and Brussels) and devolved to its citizens.
@PerKurowski
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