In a recent IFR article, Natixis’ Chief Economist Patrick Artus argues that despite QE being hailed as a panacea for economic health, it is only for the benefit of the financial markets. Indeed, it is because of bond holders – such as institutional investors and banks – that monetary policies will remain expansionary for a long time, despite the little aid it will provide for Europe’s inflationary issues or its low growth.
Serving to benefit the region’s bondholders, a loosening in monetary policy would lead to a rise in interest rates would lead to massive capital losses for the bondholders – a result the central banks cannot accept. As in Japan, the ECB must therefore conduct monetary policies that keep long-term interest rates low to avoid a financial crisis unravelling, even if it provides little benefit to Europe’s overall economy.
Certainly, expansionary monetary policy could prove to be the bête noire of Europe’s economy.
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