ECB will be checkmated by BUBA :Do not expect too much from ECB on QE

Bundesbank President Jens Weidmann Speak

"Soundness must not take a back seat to flexibility"

"These structural problems cannot be resolved by printing money," 

...'the role played by the Eurosystem under the Maastricht Treaty, which cemented the independence of the central bank. In return for this independence, however, the Treaty placed clear constraints on the Eurosystem's mandate, as reflected in the ban on the monetary financing of governments and the fact that central banks were prohibited from engaging in economic policymaking'...

"the line drawn between monetary and economic policy can vary in width," 

...' although central banks had played a significant role in preventing an escalation during the crisis, they could not take the place of the necessary adjustment processes...'

...'it was not enough to correct undesirable developments at the national level, because the crisis had also revealed weaknesses in the institutional framework of the euro area. It was important to reinforce the principle of individual national responsibility. The alternative to this would be a genuine fiscal union..., but there was no willingness right now to relinquish extensive national sovereign rights in fiscal policy matters. '

'... the principle of individual national responsibility ultimately meant that governments, too, must be allowed to fail financially, and that one of the key lessons of the euro crisis was therefore to place euro-area banks on a more robust financial footing.'

"Monetary policy cannot solve structural problems. Such problems can only be remedied by political means, through growth-friendly reforms."

http://www.bundesbank.de/Redaktion/EN/Topics/2015/2015_01_19_Weidmann_soundness_must_not_take_back_seat_to_flexiblity.html?startpageId=Startseite-E 

Without any risk or responsibility...

Fears seem to stalk Central banking corridors yet hesitation...

Swiss National Bank  broke a myth: that central bankers  keep their old given words ; come what may. They go back on words when they see an avalanche likely.

Coming events cast their shadows ahead and fear of ECB QE prompted the Swiss to break free.

Japan is still struggling with its combat of deflation. Bank of Japan had to agree that deflation is as yet to be hounded out by Abenomics. The dependence on low oil prices to be a substitute element for stimulus (also advocated by the Bundesbank) is a reflection of their fatigue.

There was unanimity in the Bank of England that rates should not be raised.

Despite its affirmations to the contrary, Denmark will find it difficult to retain the peg to Euro. The market will try to break open the vaults. The Danish crown might appreciate to levels which might hurt the exports of the country, already affected by Russian events.

Desperate at falling prices, Iran cried out that oil may touch $25. IMF has projected a 0.3 percent fall in global growth. Yet there is 'cognitive dissonance' from German central bankers on ECB's stimulus.

Good for Europe is a good fall in the euro. The boast of an anchor currency is meaningless if the markets are stalled and economies are jammed. The Italians have started restructuring their banking system but then it took them so long...

A little QE is a dangerous thing and the yet the Euro appreciates!!!!

The World can never  underestimate the Bundesbank (BUBA) in its ability to erect walls to protect what it believes are German interests. So whether Mr. Draghi's stimulus being euro fifty billion less or more is not the real issue. Rather it seems to be that the Germans (read BUBA) have a perception that as oil recede, there is a substitution effect in place with real incomes of consumers moving up and this acting as a stimulus to demand. So it goes without saying that while there is quantitative easing, it will be what BUBA thinks just enough.

A half hearted stimulus package should result in a QE  effort which is sub optimal. Given that ECB
(like most Conservative, blue suited staid central bankers!) is slow and typically bureaucratic, convincing for further quantum installments would be quite tough.  A little QE is a dangerous thing and yet the euro appreciates. Japan has been hurt for years (quite longer than even a decade ) on the back of strengthening currency. Europe has seen it happening to its unified currency almost since inception.
In the current scenario, a rise in euro will see fall in exports.

This would affect EU growth rates negatively.  Real economics falling, yet currency appreciating!


Views expressed without any risk or responsibility.