Last September, the Council of the European Central Bank decided to launch the bond-buying to include the program with purchase of 20 billion euros per month. 12. March Council announced the increase of the programme to 120 billion Euro for the year 2020 and 18. In March, he put a 750 billion Euro “pandemic-bond purchase program”. In order for the ECB in this year of the economy and the Euro zone countries through bond purchases of 1.11 trillion euros of new money available.
if the generous lending programs for the banks, one would think that there would be no no Euro state money to combat the Corona pandemic. Nevertheless, a number of state leaders and Economists, the issuance of bonds with joint and several liability of all Euro countries. The old proposal for Eurobonds is now warmed up under the new name, Corona-Bonds again.
The name change reveals that the crisis is used for the moralization of politics. Away from the actual needs, exerted an irresistible pressure on recalcitrant politicians, in order to bring them to consent to a Corona bond, or to have access to the resources of the European stability mechanism without conditions. The Person
Thomas Mayer founding Director of the flossbach von Storch Research Institute. Before that, it was until 2012 the chief economist of Deutsche Bank.
German and nationals of other States are resisting the mutualisation of debt are shown as the bad Europeans and bad neighbors. Italian politicians are calling for in the German media Corona-Bonds, but the Italian media about the shooting of Italian patients in German intensive care units across. It is only a matter of time, until German politicians, such as in the Greece of crisis, are again shown with a Hitler moustache and a swastika armband. You are no longer able to resist the pressure finally.
The United States and Japan are not a role model
But, the Corona-Bonds be-activists say us because the other countries from the USA to Japan the way? The Central government issued bonds to combat the pandemic and support the economy, and the Central Bank ensures that these bonds can be sold at low interest rates. The European monetary Union should take that as an example. Exclusive equity Webinar with Beate Sander
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What you need to conceal, however, is that there is a significant difference between countries with a national currency and the Euro-zone. There, it can determine the voters in Hand, to how far the state and the Central Bank can go. In the Euro area can, however, purchases of individual States by the ECB bond and common bonds, and the costs for these actions to other countries to pass.
ECB will help the weak countries
in Order to limit this, there was financial assistance from the European stability mechanism, so far, only against pads and the ECB has divided before the outbreak of the Corona pandemic, their purchases, in accordance with the proportion of countries with their capital. Now the ECB wants to make the division of purchases “flexible”, so that you can extremely highly-indebted States, more help. The European Commission has suspended the rules of the stability Pact and the money is expected to flow through the common issuance of bonds without conditionality.
Who is modest, is the Stupid
The consequences can be illustrated like this: A group of work colleagues in a Restaurant. All order what they want, and at the end of the bill will be divided in equal amounts. Who gives up the most expensive order is, benefits, who remains modest, lose. Each, therefore, has an incentive to make the bill as large as possible. You then must find the group that she has enough money to pay the bill.
It would be naive to assume that financial markets would not look through the mutualisation of debt has created an incentive to take other people’s money to spend, by. The rates of interest will rise naturally, as long as they are capped by bond purchases of the ECB. But the players in the foreign exchange markets, the monetization of excessive debt into consideration.
The view of Mexico as a cautionary example
In the seventies, Milton Friedman has described the example of the Mexican Pesos, the currency markets could react. The Peso was then coupled by the Mexican government to the U.S. Dollar. With time, the interest rate differential was in favor of the peso. It seemed that the market players were able to achieve in Dollar-funded investments in Pesos of risk-free profits. However, due to the inflationary policies of the Mexican government, the connection to the Dollar was finally, and the Peso depreciated abruptly. In the economic literature of the abrupt collapse of the currency became known as the “Peso Problem”. We may experience a Comeback as the “Euro Problem”.
investors should therefore be in a strong depreciation of the Euro. Since the middle of last year the Euro has lost against the Gold 25 percent of their value. The impression that the money creation of the ECB unit for the financing of the debt in the Euro area is out of control, consolidates is likely to overtake the Euro and the fate of the Mexican peso. Stock market professional, Dirk Müller: The United States will be stronger than ever from the recession FOCUS Online stock exchange professional Dirk Müller: The United States will be stronger than ever from the recession
More text by Thomas Mayer in FOCUS Online
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