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Rocky Path to ECB Money-Printing

Rocky Path to ECB Money-PrintingRocky Path to ECB Money-Printing

A landmark legal opinion this week will remind the European Central Bank of the limits it faces as it advances towards money printing, while a tumbling oil price saps inflation in debt-strained Europe.

With expectations high that the ECB is on the verge of buying government bonds with new money to shore up the economy, an influential adviser to Europe’s top court will give his view on Jan. 14 about an earlier unused bond-buying scheme, Reuters reported.

It is the latest chapter in a long-running and increasingly bitter dispute about quantitative easing (QE) between the ECB and Germany, the largest member of the 19-country bloc, that is likely to limit the size or scope of such a program.

As the debate continues, the eurozone economy is all but grinding to a halt. Germany is expected to announce modest growth on Jan. 15 for last year.

“The falling oil price is a huge shot in the arm. Nonetheless, it is clear that the ECB will have to do something. There is no growth and the debt burden is too high. The world will be flying on one engine, the US, for quite some time.”

 Oil Collapse

Oil’s second-biggest collapse on record has taken the price of a barrel of benchmark Brent crude to around $50 from $115 in the middle of last year.

That is a mixed blessing for the stuttering global economy. While it is good news for a slowing China and should put more money in the pocket of motorists around the world, cheap oil has put price inflation into reverse in the eurozone, increasing the burden on countries with heavy debts.

It has also compounded an economic and currency crisis in neighboring Russia, one of the world’s biggest oil exporters. Russia is already locked in conflict with neighboring Ukraine.

 Inflation Eyed

Low price inflation, a symptom of the global slowdown, has led some to question the rule of thumb for measuring economic health, namely that there should be a steady up-tick in prices.

British inflation will be watched on Tuesday, with analysts betting it will hit a fresh 12-year low below 1 percent.

Those looking for respite elsewhere may be disappointed. The People’s Bank of China cut the cost of borrowing in November and loosened loan restrictions to encourage lending.

Hopeful eyes are turning to the ECB. But German opposition to money printing could put a fly in the ointment.

Its Bundesbank has warned that buying bonds issued by eurozone governments – including politically brittle Greece – could leave it on the hook for losses.

Next week, an adviser to Europe’s top court will give his opinion on a challenge by a group of Germans to an earlier ECB bond-buying program.

Financialtribune.com