European QE Between ECB Needs and German Wants

It’s crunch time again for Mario Draghi.

The president of the European Central Bank, whose 2012 pledge to save the euro helped Europe crawl out of its debt crisis, is being called upon to perform another rescue mission.

With prices falling for the first time since the Great Recession, investors are now betting heavily that the ECB will start printing money to buy government bonds on a huge scale.

The Fed-style program of quantitative easing (QE) would be aimed at preventing a deflationary spiral that could spark a new crisis.
“We see a very high probability that the ECB will scale up its asset purchases shortly, probably on January 22, with at least a 65% probability that the new purchases will include sovereign bonds,” wrote Berenberg chief economist Holger Schmieding in a note.

Opposition is particularly pronounced in Germany, where critics argue QE would be ineffective, let governments off the hook by reducing the pressure for economic reform, and may even be illegal.

If Draghi holds fire again on January 22, it may only be because he wants to keep something in reserve should Greek elections three days later deliver another blow to the eurozone.

Leading the opinion polls in Greece is a party that has pledged to cancel a big chunk of the country’s debt and negotiate new terms on its 240 billion euro bailout by the EU and IMF. That could lead to an impasse that may ultimately force Greece to quit the euro

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza