Economisch kort – centrale banken zitten volledig klem
In deze Economisch kort gaat Daniel Lacalle in op de situatie die de centrale banken voor zichzelf geschapen hebben, en waarom ze er niet uit kunnen.
The European Central Bank announced a tapering of the repurchase program on September the 9th. One would imagine that this is a sensible idea given the recent rise in inflation in the eurozone to the highest level in a decade and the allegedly strong recovery of the economy. However, there is a big problem. The announcement is not really tapering, but simply adjusting to a lower net supply of bonds from sovereign issuers. In fact, considering the pace announced by the central bank, the ECB will continue to purchase 100% of all net issuance from sovereigns.
Publicatie 12 september
There are several problems in this strategy. The first one is that the ECB is unwillingly acknowledging that there is no real secondary market demand for eurozone countries’ sovereign debt at these yields. One would have to think of twice or three times the current yield for investors to accept many eurozone bonds if the ECB does not repurchase them. This is obviously a dangerous bubble.
The second problem is that the ECB acknowledges that monetary policy has gone from being a tool to help implement structural reforms to a tool to avoid them. Even with the strong GDP bounce that the ECB predicts, few governments are willing to reduce spending and curb deficits in a meaningful way. The ECB estimates show that after the massive deficit spending of 2020, eurozone government spending will rise again by 3.4% in 2021 only to fall modestly by 1.2% in 2022. This means that eurozone government spending will consolidate the covid pandemic increase with little improvement in the fiscal position of most countries. Indeed, countries like Spain and Italy have increased the structural deficit.
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