ECB between a rock and a hard place - ANZ

The market is optimistic that the ECB will extend its quantitative easing programme today at current levels for a further six months, notes Sharon Zollner, Senior Economist at ANZ.

Key Quotes

“There is a real risk of unpleasantness in European bond, equity and FX markets if Draghi doesn’t at least meet expectations. However, as well as the general emerging political concern about unintended consequences of QE for bank profitability and income inequality, there are undeniable political aspects to the fact that through its bond-buying the ECB is propping up the bond markets – and hence banks – of some countries with clearly unsustainable debt loads.”

“The longer the charade continues, the larger the eventual bill for the European (read German) taxpayer, via ECB/central bank Target 2 settlement balances. Has the ECB, having done “whatever it takes” for years now, averted catastrophe or merely deferred it? It seems unlikely that Draghi will be willing to fold his hand tomorrow and find out. That’s certainly the market’s bet.”