This is the major issue for Europe: they have a central bank that is following its mantra of inflation fighting in the face of a crisis that could destroy not only the European Union but cause a depression for Europe.
Have they not researched the 1930s? Have they not been engaged from 2007-2009? Have they not learned from the US/UK?
Trichet and Weber are the personification of Ralph Waldo Emerson’s hobgoblin of little minds: they remain consistently focused on inflation while deflation and the economy sink.
It is almost incomprehensible that they would sterilize the bond purchases that they are doing to “stabilize” the markets. They’re move has actually destabilized the markets already. I feel remiss in that I believed they would not sterilize these purchases. My thought was they would not only allow the Euro to depreciate, but also pump money into the European economies to help southern Europe grow. This would help the PIIGS fiscal situation with tax receipts increasing with growth.
Sadly, I was wrong and the ECB announced a 1% mop up facility to drain the liquidity it provided.
How can they possibly do this? To me, this is the path towards default for Greece that the ECB prefers.
What is the market’s reaction?
The markets bought back their Euro currency shorts and sold European equities as they dumped risk. Overall, this is a major vote against the current ECB policies and a major vote against the policy making capability of the European Union. Until the ECB engages in Fed like behavior, Europe will suffer and the bottom for European equities will be unknown.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.