Tuesday 10 March 2015

QE Works!

So some years after the Uk and US did QE, the Eurozone has tried the same. And to no ones surprise it has had the same effect.

Along with the currency crisis, the launch of QE has seen the Euro plummet in value versus the dollar. To the point at which is is not below 1.08 to the dollar and so veyr near to parity - with the direction of travel suggesting that parity maybe reached. With the Pound hitting 1.40 to the Euro, my summer holiday to France is looking that bit cheaper too.

In the main, this is good news for Europe, a lower currency will help Europe be more competitive against Asian and American economies and help it climb out of its long slump.
Also QE has pushed down bond rates, even for Greece, averting a return of the Debt crisis of 2011, for now.

However, there are dark clouds, Germany benefits the most as it exports the most - A D-Mark would surely have parity with a Pound Sterling by now. Thus the Southern European nations cannot export internally in the Eurozone at good rates and this is a big challenge to the Eurozone periphery.

Also, it suggests the long-term 'austerity' (also known as sanity and being able to sack people for underperforming) is unlikely to be followed through. Of course too, if you are a saver in Europe then this trend is not your friend.

Overall though, the best thing to say is its about time...


Jer said...

Remember the Rainbow Warrior - go to Portugal instead.

Is this a licence for the BOE to restart QE?

CityUnslicker said...

Jer - why would they do that - the asset bubbles in the UK are astronomical. Real Estate at all tiem highs, bond yield at lows, FTSE at all time highs.

the dose was strong enough here...

Mark Wadsworth said...

"A D-Mark would surely have parity with a Pound Sterling by now."

That's an interesting line of thought.

At 1.40 x entry rate 1.9 or so, the GBP-DM rate would be 2.7, not far off where it was pre-1999.

Clearly, the hypotethical D-Mark would be lower than 2.7, maybe 2.0 or 1.5, but parity?

I doubt it. Long run, currencies seem to move plus-minus twenty per cent against their long run average.

Counter-thought experiment, if the D-Mark had not joined the Euro, perhaps they would be doing QE like mad to try and get their currency down.

Remember: The national religion of the Germans is having a massive export surplus, no matter what the cost.

Nick Drew said...

when I was in BAOR in the *ahem* seventies, £ = 6.25 DM, remember it well

could get a tot of NAAFI vodka for 10 pfg

(not sure how I remember anything from then, actually)

Suff said...

QE works!
Net importer of fuel and food, more competitive wages X house price bubbles, race to the bottom, trashing of savings, Japanese economy, transfer of wealth, easier for the government to borrow money.................
Feel a rant coming on so going to bed

Sebastian Weetabix said...

When I was in RAFG I remember getting more than 4 DM to the pound.

CityUnslicker said...

ND/SW - exactly. 15 years on from 2.7 we would be near Parity. Would be a good time for a currency union actually....

Jer said...

CU "Why would they do that"

Because they want to - and this gives them cover?

Budgie said...

So the eurozone is now doing what the USA and the UK did, and at which the EU originally sneered loudly. They're still on about how it "all started in America" as though the UK and eurozone are entirely innocent when we, in fact, were following similar economic policies anyway. It wasn't a global financial collapse - it was a USA-UK-eurozone collapse.

Sebastian Weetabix said...

@CU- indeed. I certainly don't buy Wadsworth's +/-20% theory. Ever since the Krauts defaulted in 1948 and had their debts forgiven in 1953 their currency appreciated. Given they have a long history of debt defaults and only got out of it due to a jubilee, it makes their present rectitude re Greece rather ironic.

hovis said...

"long-term 'austerity' (also known as sanity and being able to sack people for underperforming)"

for the periphery countries in the short, medium and soon to be long term:

Austerity == GDP reduction
Austrity == Capital reduction
Austerity != sanity
Austerity != structural reform

Anonymous said...

@Nick Drew - when I was in BAOR in the *ahem* seventies, £ = 6.25 DM, remember it well

That's nothing! When I went on a school trip to Germany in the mid 1960s there were 13.5DM to the £.. :-)

Germany was a very cheap holiday!