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The Federal Reserve's QEII has been widely criticized by politicians, though received somewhat greater support by central bankers. Maybe the ECB should consider it own variant of quantitative easing.

A couple of large investment houses have argued that Europe needs a large fiscal transfer from the wealthy (primarily Germany) to the poor (largely the periphery). However, this is not politically tenable. One of the criticisms of monetary union is that it does not have a mechanism for fiscal transfers, but it cannot be created by fiat. Indeed, in Germany's case it is not just the lack of political will, but also it would be unlikely to find favor from the Germany constitutional court.

The ECB could step into the breach but buying a large amount of sovereign bonds from the periphery. This would support the market, push down interest rates and potentially arrest the contagion. Moreover, as a large owner of peripheral bonds, the ECB would be in a position to help foster a restructuring their lengthening debt maturities.

The ECB has increased its purchases of sovereign bonds in recent weeks and last week bought the most in two months. However, the amounts are still small and have totalled about 67 billion euros since the program was initiated in May. The ECB also offsets the impact on money supply by offering 7-day term deposits. It has not always managed to drain the full amount every week and as the amounts get bigger it may prove more difficult.

The biggest obstacle may be ECB members like Weber and Stark who opposed the program from the start. They were over-ruled (out-voted), but have continued to be critical of the program, arguing limited impact at best.

As the crisis deepens and threatens core countries, the future of monetary union continues to be called into question. What was once absurd, now simple seems unlikely. However, as the situation becomes more desperate, the unthinkable has to be thought. Within the ideological constructs and legal/treaty parameters, quantitative easing by the ECB may be one of the few ways out.

Disclosure: No positions