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[Opinion] So Mario Draghi managed to surprise the markets

By William de Vries, Head of Core Fixed Income at Kempen Capital Management

La sorpresa

So Mario Draghi managed to surprise the markets. Many opinions circulated before the meeting on Thursday last week, but few expected him to be so bold. Rates have never been this low before in the Eurozone and the balance sheet of the ECB is being put to work again to combat low inflation. Inflation yes (not economic growth), we should remember that the only mandate of the ECB is to anchor inflation close to the 2% level. 

Although Europe is not at risk of sliding into a deflationary Japan-scenario (the economic and structural backdrop is simply not comparable), low inflation reflects the debt overhang that continues to dominate economic behavior in the Eurozone. Ultra-low rates and the expansion of the ECB balance sheet alone cannot reignite the Eurozone economy, only fiscal stimulus in Northern countries and structural reform in southern ones can.

The ECB is only buying time for politicians to implement measures that are politically sensitive, but economically crucial for the medium term development of the EU. The Germans (and Dutch) need to spend more and the French and Italians need to liberate their country from an overload of red tape.

Maybe some tailwind of a weaker euro could convince them to play ball. Better start playing now than having your club being disqualified and bruised by the bond market bully later on.

Source :

 Comprendre l'économie durable pour s'y investir


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