Oh dear. I don’t envy Mario Draghi right now. But he’s doubled the ECB balance sheet to over 41% of Eurozone GDP since 2014 and he’s kept interest rates at -0.4% since March 16, 2016 and has been advertising an end to QE by the end of 2018.
Problem for Mario and the ECB: Growth and markets are falling all around him. $DAX is in a bear market. What if you “do whatever it takes” and things slow down anyways? Now Mario is not responsible for Brexit, or Italy or trade wars, but as a central banker he’s responsible for ensuring his central bank has ammunition to deal with downturns.
But he’s done nothing but print. For years.
Yet everything about Europe is bad right now. Italy, Brexit, growth, financial conditions:
Growth has been slowing down since the summer of 2017:
And yet here we are with a bloated balance sheet 10 years after the financial crisis:
And this is the environment the ECB wants to tighten its intervention program this week?
Look, I don’t envy Draghi here. He’s basically looking at a colossal policy failure here and he has no good choices. If he ends QE and has nothing else in his pocket Europe may enter a recession right when he retires next September. Not having raised rates once, still running negative interest rates with everything looks gloomy. Is that to be his legacy? A failed central banker who did nothing but print and then left with a recession running?
His choices seem impossible here. If he doesn’t end QE he looks the fool with no credibility having signaled the end of QE all this year and even just a few weeks ago.
“Whatever it takes” has been his mantra. Well, Mario, what does it take here? And that’s the question the ECB has to answer this week.
I guess that’s what happens when all you do is print. You printed it Mario, now you own it. It’s your hell just make sure it’s not becoming everybody’s hell.
But maybe he’s got a surprise planned. After all $DAX is heavily oversold with the lowest weekly RSI since 2011 and there’s support lower:
What that surprise might be is debatable, there don’t appear to many good options. What? Print more?
Growth is slower than 2015. $DAX is lower than 2015. And the ECB balance sheet is more than twice than what it was in 2014.
Welcome to Mario’s hell.
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