The European Central Bank (ECB) is expanding its life support program for another year to a tune of $2.4 trillion. Is there any reason why so many people want to leave the European Union?
Ostensibly, the European economy isn’t strong enough to take off the training wheels as ECB President Mario Draghi confirmed it will extend its bond-buying program until at least December 2017. Though, Draghi will reduce its bond-buying initiative from $86 billion a month to $64 billion beginning in April.
Although many investors had expected the ECB to extend the program, they were taken aback by the fact that Draghi slowed down the monthly measures. Despite the fact that the central bank will purchase fewer bonds, Draghi assured investors that this does not mean that the ECB is embarking upon a taper.
“The intention of the monetary-policy decisions is to maintain the extraordinary degree of accommodation in place,” Draghi said. “[If] the outlook becomes less favorable or financial conditions become inconsistent with further inflation progress, the Governing Council intends to increase the program in size or duration.”
He added that policy makers did not discuss about tapering purchases to zero. This suggests that the ECB is prepared to keep the quantitative easing (QE) program going for as long as it takes to spur growth. If that ever happens…
The euro dipped by one percent as Draghi was delivering his speech.
With several European countries having elections in 2017, some are wondering if potential political upsets will impact the ECB. Draghi averred that it wouldn’t, and the creation of jobs would ease political upheaval.
“Countries that need reforms need to undertake them regardless of what is the general political uncertainty,” he said. “The best way to deal with uncertainty is to restore growth, job creation.”
The ECB is a mess, and many Europeans realize this. Perhaps a Frexit, Italexit, Nexit and other forms of exits are in store.
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