Euro Quantitatively Eased
May 19th, 2009
This week, a lot of economic data hit the news. If you have the time (and patience), I recommend reading the full article which we’ve summarised in ECB Buys into Spanish Property.
The focus of this article is the ECB investment in €60B of cédulas hipotecarias – the covered bonds also referred to in the Moneycorp: Euro Weekly Update.
If I’ve understood it correctly, this translates into quantitative easing for the Euro – essentially printing more money to fuel the economy. This should reverse deflation by introducing the inflation that comes with an increased supply of money.
The currency markets seem to have reacted accordingly last week as Sterling lost ground when the Bank of England announced a fresh injection of Sterling into the UK economy. This week, Sterling climbed against the Euro as the ECB announced their €60B investment, effectively devaluing the Euro.
Two other sets of Spanish data also surfaced this week. In Spanish Economy at 50 Year Low we learn that Spain’s GDP fell by 1.8% in the first quarter of 2009. However, Martin van Vliet, an economist at ING commented:
“I think for Spain, and the rest of the euro zone, the first quarter was the worst of the recession, the peak of decline.”
This notion of the recession petering out is echoed in Spanish Property Slowdown Slows where the rate of decline in house sales appears to be slowing. Economist Carlos Maravall at the AFI consultancy commented:
“It’s not that things are improving, there’s just less deterioration.”
Before we celebrate, however, Edward Hugh who writes for Spain Economy Watch reminds us:
“The Spanish economy is in the throes of a major correction – most of which has yet to get underway”
While I don’t pretend to understand the ins and outs of Edward’s arguments about the likely effects of the ECB acquisition of covered bonds, it does seem to me to be a positive move.
At the April G20 meeting, the US President was critical of Europe for not using their equivalent of Federal Reserves to bolster the economy.
As Edward Hugh notes, this €60B injection won’t be nearly enough to solve the entire European problem (Spain’s exposure alone is in the region of €700B). However, it is a step in the right direction and, at the very least, an admission that a European-wide solution is required.
Martin Dell, Kyero.com
Related Posts
- Moneycorp: Sterling Rallies Against Euro
- Moneycorp: Euro Weekly Update
- Moneycorp: Euro Weekly Update
