At a huge rally in Athens last Thursday, Alexis Tsipras, the leader of Greece's radical left parties (Syriza) – a widely expected winner of today's elections -- was standing at the podium next to Pablo Iglesias, the leader of Podemos, Spain's upstart left-wing party currently polling at about 30 percent. And, in a completely unexpected event, the Greek radical leftists also got a strong endorsement from France's far-right Front National, credited with 28 percent of votes in next regional elections. All these parties are fiercely opposed to policies that have led to their countries' rising unemployment, poverty and growing indebtedness.
Back-door fiscal easing
What is Germany saying to all this?
Official Berlin's deafening silence about the ECB's new stimulus is in sharp contrast with hostile commentaries from the German media, including the Deutsche Welle, the country's public news service. German analysts see no economic rationale for the ECB's new stimulus because they don't see any danger of a euro area price deflation. They are outraged that cheap and abundant cash will be given to South European banks and governments, which they accuse of being unwilling to implement structural reforms and sound fiscal policies.
Read MoreWhy we were right on QE: ECB board member
German Chancellor Angela Merkel has been warning for some time about the reform backsliding by heavily indebted euro partners. Her latest comments came last Monday (January 19) during the New Year party at the German Stock Exchange in Frankfurt. With the ECB's President Mario Draghi in attendance, she repeated once again that the ECB should not ease the pressure on euro area countries to conduct structural reforms and tight fiscal policies.
Are the Germans right? For the most part, I think they are.
The ECB's deflation fig leaf is clearly an exercise in obfuscation. The 0.2 percent decline of euro area inflation in December is entirely due to the 6.3 percent drop in energy prices. Excluding energy, inflation rose 0.6 percent last month – almost exactly what it was in the entire second half of 2014. But inflation in the service sector – part of the economy that is mostly sheltered from competitive forces -- was 1.2 percent, and it was stable at that level over the previous six months.
Wages in the euro area are also increasing; they are estimated to have risen last year by 2 percent, pushing unit labor costs up by 1.5 percent.
Germans are also right in suspecting that ECB's huge liquidity provisions will lead southern euro area members to ease up on their reform efforts, because the cheap public debt financing will bring deficits down without any particular measures of fiscal consolidation.
ECB's policy transmission remains broken
Doubts expressed by German observers that the liquidity created by ECB asset purchases will not find its way to businesses and households are also well founded. Clearly, the euro area banks will not rush to lend (i.e., accumulate bad credit risks) in a recessionary economy. Looking at the U.S. example, one can see that American banks' lending to consumers began to pick up only last spring – after three phases of aggressive "quantitative easing" that began in November 2008.
Germans, however, have erred – and are still erring -- on two crucially important issues.