THE BLOG
01/24/2015 05:22 pm ET Updated Mar 26, 2015

Don't Count on the ECB to Stimulate the European Economies

The fanfare announcement of the measures taken by the European Central Bank and the PR machine that led the media to blindly endorse the idea that they would bail out Europe, stimulate growth and increase jobs would be fun if they did not demonstrate the pathetically inadequate leadership of Europe.

Buying public and private bonds does not stimulate the economy.
There is a long way between a quantitative easing and economic growth. It is not automatic. It is even more uncertain when interest rates are as lo as they are in Europe.
Where will the bonds come from? most likely from insurance companies and banks who are already washed with liquidity and do not know what to do with their deposits.
Interest rates are getting negative.

The Bloomberg generic 10-year government bonds shows a decrease in one year from 1.74% to 0.32%. Germany 5 year bonds now have a negative interest rate.
The interest rate impact of the new measures will be to deprive investors and particularly pensioners of a "real" revenue on their deposits and bonds, making their situation even more reasonable.

It will have no impact on corporate bonds. BMW, the German car maker recently issues bonds at 0.365% and 1.0%. Spain is now issuing 25 billion euros at 1.60% against 4% a year ago.

European banks don't want to lend.
The big argument is that the banks will be stimulated to lend and it will be good for the economy. Unfortunately this "historic" decision has already been done by injecting immediately $ 1.5 trillion into the banking sector. While the government bond holdings remained stable, the loans decreased by $ 3 trillion (approximately 15%0 during the period.

Weak European countries are not committed to reform
The story is that this is done to buy time for weak countries to undertake the necessary social and tax reforms they needed to improve their situation. No commitment has even been whispered by Italy and France the top European indebted countries with 100% and 130% of GDP. They both exceed $ 2 trillion of debt. Their populations are more interested in demonstrations and strikes than in rebuilding their economies and accepting the inevitable: their social system is unsustainable.

I cry for you Europa
For all the media frenzy, the complacency of economists, the trumpets announcing a new era, Europe does not want to understand the basic situation it is in. Finance cannot bail Europe out. Only a profound transformation of a regime it cannot sustain will rescue it. Will we need Italy to collapse or another major banking crisis to wake Brussels up?