Draghi fights the drag


Michael Roberts Blog

After the European Central Bank (ECB) announced a battery of new credit easing measures at its council meeting yesterday, the European stock markets hit six-year highs, while Wall Street also reached another record. Indeed, the FTSE All-World equity index surpassed its previous high touched in late 2007 when the financial crisis began to unfold. Investors in the stock market (and in property) just love news that interest rates on borrowing are being lowered further and there will be all sorts of new cheap credit facilities to invest with.

Mario Draghi, the ECB chief, is worried that the Eurozone economy is not recovering and instead is in danger of slipping into a debt deflation spiral. So the latest measures: cutting interest rates; providing four-year cheap loans to banks if they lend onto to small businesses; and talking about buying bonds directly from banks (so-called quantitative easing, QE); all these are designed…

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