The ECB is now reaping the grim deflationary harvest it sowed by dithering for so long in the face of shrinking credit and a diminishing money supply – all due, of course, to four years of universal austerity at a time of frantic de-leveraging by bankrupt banking sectors too cosily intertwined with fiscally stressed governments.
Yesterday’s triple-whammy of measures, by the ECB, sounded impressively radical. Alas, history will show that they were only meant as an excuse for not doing what might have worked, which is genuine quantitative easing, especially of the sort that I advocated here: buying en masse EIB (European Investment Bank) bonds in conjunction with a large, Pan-european investment-led recovery program.
As for the announced measures: The reduction of the basic interest rate to 0.1% is irrelevant when so close to the zero bound and in view of falling or stagnant prices. The negative deposit rate is also bound to disappoint for reasons well exposed by Frances Coppola. Lastly, George Magnus summed up why the €400 billion TLTRO is a water-pistol trained against the dearth of credit for SMEs.
In idiomatic Greek, the ECB’s triple-whammy will prove a triple hole in the water. Unfortunately…