ECB Prepares to Expand its Racket, Markets Salivate

“The current situation is stable with positive perspectives”

Vitas Vasiliauskas, the European central banker who recently courted notoriety for describing European central bankers, with apparent deadpan seriousness, as “magic people” endowed with limitless powers to shape Europe’s economic environment, is back. In an interview with Reuters on Wednesday he waxed lyrical about the Eurozone’s rosy economic outlook.

“The current situation is stable with positive perspectives,” Mr Vasiliauskas gushed. “So if you ask me what do you think about possible steps during the summer, my answer would be: nothing.”

This is the same Eurozone where the unemployment rate still hovers above 10% and more than half of young people feel economically marginalized, according to a new poll. But that is not the Europe that Vasiliauskas and his ECB cohorts are worried about. For them the only Europe that counts, the Europe that they’re frantically conjuring figurative rabbits out of hats to keep in tact, is a Europe of giant, failing banks, bloated, debt-laden corporations, and a deeply flawed single currency.

To save that Europe, the ECB has cut its deposit rate into negative territory and is buying €1.7 trillion of mostly government debt. Through the so-called TLTRO-II it has promised to pay banks money to fulfill one of their most basic functions — i.e., lend to businesses and households. It is a measure that Vasilauskas leeringly describes as “very sexy.” The ECB is also about to expand the reach of its QE program to include corporate bonds. This should be enough to keep the punters happy, at least until the Fall, Vasilauskas says.

If further action is needed — which it no doubt will be — the ECB has plenty more tricks up its sleeves. It could even expand into new asset classes, Mr Vasiliauskas ominously points out. On one condition: they must have a direct transmission effect on the real economy. Asked if shares and property buys would have such an effect, Mr Vasiliauskas was delighted to reply that they would

Continue reading the article at WOLF STREET

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