Just because the U.S., Britain, and Japan have have committed to support their economies with more quantitative easing doesn’t mean the European Central Bank (ECB) is necessarily going to follow along.
In fact, the ECB is set to start cutting life support, as Ambrose Evans-Pritchard has highlighted:
A string of ECB governors have said this week that emergency support must be withdrawn soon, signaling a phasing out of the unlimited lending facilities that have acted as life-support for banks of high-debt states.
This puts the ECB on a very different tack from the central banks of the US, Britain, and Japan, which have abandoned “exit strategies” and begun to prepare for fresh quantitative easing as a precaution against a possible growth relapse. “The ECB seems set on a pre-ordained course, oblivious to other subtleties,” said Julian Callow from Barclays Capital.
So far the ECB has maintained its position despite fresh trouble emerging in the European financial system:
An ECB report on Wednesday said several EU banks are having trouble raising money on the wholesale funding markets and that some “remain overly reliant on credit support from central banks and governments, which continues to be a cause for concern.”
Moreover, both the ECB’s hawks and doves (those relatively more against/for monetary stimulus) are singing the same tune — Time to begin cutting support.
The ECB’s response to this worry has baffled investors. Jürgen Stark, Germany’s hardline member of the ECB, said the bank is “in the process of phasing out some of the non-standard measures”.
The comments have since been echoed by more dovish members, suggesting that the ECB has now decided on its exit strategy regardless of the crisis in Ireland and Portugal, where bond spreads have hit fresh records. “The market has been a bit spooked by this,” said Nick Matthews from RBS.
Maybe this is why the euro is soaring. As the U.S. revs up the printing press, Europe might actually begin turning theirs off.
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