Low-interest policies, ultra-cheap money, dwindling oil prices and a booming stock market–2015 was not at all a boring year economically, and there’s more excitement to come.
European Central Bank chief Mario Draghi is probably the loser of the year. Future generations will read in history books that this was the man who opened all floodgates by introducing a large-scale bond-buying program in the spring of 2015 to pump billions upon billions of euros into the market every month, Henrik Bohme wrote for DW.
The top-profile guardian of the euro currency coupled that measure with a near-zero interest rate policy. That sounds like a dangerous mix, which it is indeed. Draghi, the magician from the brand-new ECB tower in Frankfurt, has aimed to encourage banks to lend generously to the corporate world so that companies invest more. He wanted to crank up the economy, trigger higher inflation and send consumers into a spending spree.
Alas, his plan didn’t work out the way it was intended. Lenders have chosen to sit on the money rather than lending it, even accepting negative interest. Companies are not investing more, as the global economy is in a volatile state. Eurozone economies are largely stagnating, with inflation hovering around zero.
But why would one want to bend over backwards to arrive at a self-imposed inflation rate of close to 2%? Does that really make sense at all at a time when oil prices hit a new low almost every week? Isn’t that the real problem?
Speculators Benefit
What is true is that consumers remain in a spending mood, not least because they think it’s better to buy goods and services rather than take the money to the bank for very little reward. Draghi’s gigantic experiment is like open-heart surgery, which predominantly leads to one thing–a colossal depreciation of money. The ECB’s near-zero interest rate policy only means that capital is channeled into the hands of speculators.
But for people intending to save up for their pension schemes, it’s simply weird. Of course, one could invest in some real estate property, but the next bubble is waiting to burst–sooner than many would want it to.
OK, let’s admit that Draghi’s risky policies have led to a much weaker euro against the greenback, and that’s been intended as it makes eurozone exports a lot cheaper. The two currencies may even reach parity next year. But would that help anyone else besides the German export champions?
It’s also true that flooding the markets with ultra-cheap money has kept southern eurozone nations such as Italy afloat. But for how long is the monetary policy expected to assume the role of real politics?
No Crisis-Fighting Plan
The next big issue unfolded in Greece. Has anyone not lost track of how many summits the EU had to convene before new billions of euros in bailout money went to Greece in return for its alleged massive reform program? At the end of the day, there was yet another aid package without anything really substantial having been done to help Greece get on its feet again. Expect another encore in 2016.
But then it’s not going to get the same attention, as policymakers will be preoccupied with the aftermath of the refugee crisis and mass migration. Most refugees want to stay in Germany, and there’s no easing of the situation in sight. This means Germany is facing a huge challenge, and so is the domestic economy, because there’s no guarantee that the current robust situation on the labor market will continue for much longer.
Draghi’s monetary policy agenda is poison for Europe, because it tends to prevent necessary reforms.
