Could this be one of the last kicks of the can? the 'big bazooka' that finally brings some calm and order? Even if not, it certainly does seem to be momentous, not least because if overrode German opposition, Also, and this I find patricularly noteworthy, the bond buying would be 'sterilized' - which means any money used to buy bonds, will be taken from somewhere else, which in effect would be a transfer of money from the wealthier areas, to the poorer, or at least, to those who are going bust (which is slighlty less fair!). Given how such sharing of wealth is a crucial part of any cohesive 'nation' (i.e. a society bound together enough to consider sharing amongst itself), could this be another tiny step on the road to European integration? Hearts may yet be away behind, but maybe they will inevitably also, follow the money?
BUT - while from grand EU strategy this might seem logical, a very nasty devil could lurk in the detail. While I'm glad to see the ECB doing something major, I am still firm in the belief that one can't cut one's way out of recession. Perhaps inflation is the only way to get rid of the debt effectively, without creating more, and this would mean the 'sterilization' is exactly what's not wanted, since it is this which is supposed to prevent inflation. The problem of course is that for every inflation might destroy debt, but it destroys savings too, so maybe even more than sterilization this road would require a society prepared to take the hit for its (possibly wasteful) brother. Looked at it that way, things don't look quite so bright
other comment pieces :
Impression left by announcement on unlimited bond buying is that it is technically sound ? but based on flawed economics : Mario Draghi rescue plan with more misery at its core will not save euro
http://www.guardian.co.uk/business/2012/sep/06/mario-draghi-rescue-plan-euro
- The "rescue" plan involves governments in Rome and Italy driving
their economies deeper into depression to reduce the interest rates they
pay on their borrowing. The ECB seems to think that the reason
investors are giving Italy and Spain the cold shoulder is that they are
not cutting hard enough, fast enough. Steeped in economic orthodoxy,
Draghi makes George Osborne look like a paid-up member of the Maynard
Keynes appreciation society.
The reason investors demand high interest rates when they lend to Italy and Spain is their concern about the impact of permanent recession on public finances and banks. A rescue plan that has at its core more demand-destroying measures will do more harm than good.
To sum up, Draghi has bought Europe a bit more time. The can has been kicked a few metres down the road. He has done so by incurring the wrath of the Bundesbank and will know that if this fails, there is little more the ECB can do.
http://www.guardian.co.uk/business/2012/sep/06/ecb-bond-buying-what-the-economists-say
- As expected, the ECB will buy short-term bonds
provided that there is accompanying pressure on politicians to maintain
structural changes. I believe it is essential that such conditions are
applied, not just for discipline but also because the actions taken by
the ECB are not without cost.
Opposition to the ECB action is usually made on the ground of monetary financing or inflation. In fact, one of the costs is not so much inflation of consumer prices but long-term lowering of returns to most pensioners and savers, as well as increasing the cost of pension contributions for the working age population.
This can, in turn, also negatively affect business competitiveness. These sectors of society are of course already affected as a result of the cycle of stimulus, lowering of interest rates, and quantitative-easing-type measures that have been taken in the US and Europe.
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