Panicked Calls for QE by Draghi and ECB

January 5, 2015

Both the New York Times and the Sunday Telegraph are screaming for a European hyperinflationary "solution" to the continuing crash of the European economy. In a lengthy story on Sunday, the Times warned that European Central Bank (ECB) head Mario Draghi was too timid and has allowed the European currencies to collapse into "deflation," a monetarist spin on what is in reality a total collapse of the real economy. The Times highlighted the ongoing fight within the Eurozone between Draghi and his French and Italian boosters, and German central bank head Jan Weidemann, who argues against the QE policies being demanded.

Over the weekend, Ambrose Evans-Pritchard warned in the Daily Telegraph that it may be too late for QE, noting that yields on European sovereign debt have fallen to levels not seen since the 14th Century Black Death. Italy, Spain, and Portugal this last week saw yields on five year bonds fall to between 0.13 and 0.32 percent, and German state bonds were selling at negative rates.

"Nothing like this has been seen in European history since the 14th century, after the depletion of silver mines set off a slow monetary contraction, followed by Edward III's default on debts to Italian banks and the Black Death soon after, compounding a deflationary collapse."

Pritchard warned that it may be "too late" for the ECB to launch a big enough QE to set Europe back on a "growth track," noting that Germany will run a budget surplus and will be allowing some of its expiring debt to run out without roll-over. He cited Merkel advisor Michael Fuchs, who opposed any new QE and also noted that Germany could live with Greece leaving the euro system altogether. Fuchs declared that the ECB should not, in Pritchard's words, "be in the business of propping up peripheral debt markets."

Fuchs' view that Greece can safely leave the euro is not shared widely, with panicked warnings about a Europe-wide contagion hitting the City of London press in particular ever since the collapse of the Greek government.