The ECB is ready to act…ok, almost ready

Manipulating markets and in particular the exchange rate is not an easy job, and I am confident Mario Draghi, the president of ECB, would agree with me. After being left behind in the stimulus race, the ECB is currently under growing pressure to increase liquidity in the European markets. It’s an interesting situation were financial institutions and private companies want the same thing, stimulus! While for European banks this would mean “cheap money” to use for their speculations, the private sector needs this money really badly to keep the doors of their business open. While other central banks had to feed the sharks (banks) with the hope that the “trickle-down effect” would play out (so far it has shown very little effects), the ECB is trying to figure out what to do. Cutting rates and hurt the savers was the easiest thing to do and the ECB played that card last November.European Union

If you can’t get the banks to put some money into the economy, let’s discourage workers to save money, therefore encourage spending. However, the issue with this plan is that you need workers in the first place, Europe currently has a very high unemployment rate, 12%!! And even people with stable jobs can barely afford the luxury of saving money as they are already squeezed by excessive taxation. The truth is that currently, the ECB, is doing the exact opposite of stimulus, is taking liquidity from the markets, and therefore causing the euro to get artificially overpriced. This is hurting a lot the small businesses because they have to compete with emerging markets that offer similar products for a fraction of the price.   Pity small businesses employ most of workers in Europe, therefore a strong euro means struggle for these companies and consequently less jobs. It has to be said that the fact that the ECB is resisting the alluring temptation of ineffective stimulus is positive, and it’s even more positive that they are trying to understand why banks are not anymore involved in the real economy. Maybe the artificially low interests make private loans less profitable for the banks, or simply riskier investments have the promise of high returns (who cares about risks, if those banks are big enough they will be bailed out anyway). However, the real issue is that ECB does not have a clue about what to do. They keep repeating that they are “ready to act” but the markets understood that this is just a way for the ECB to buy some time and think about a strategy. The problem is that our economies are moving with increasingly faster speed and if not fixed, problems only get bigger with time. The effects of this slow growth will weigh on our future also because remember that we need to grow enough to pay debts of the past generations. Probably the ECB will eventually find an effective way to implement some stimulus, but with their own time. When I think about this one question pops in my mind: what are they doing every day? It’s their job to be ready to act and make plans for every kind of situation, but they are constantly “almost ready” and always 2 or 3 steps behind the others. In the long term the European economies will pay for this inefficiency but probably it’s just a design issue, what’s the point of having a central bank that cannot do anything?Do we really need to see problems before getting something concrete from the ECB?

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