The eurozone isn't anywhere close to higher rates
Martin Wolf is out with his latest column in the FT and the title sums up his argument rather clearly: The ECB must reconsider its plan to tighten
He argues the chances of a strong pickup in growth in region this year are negligible, with the chance of a recession at about 25%. The consensus growth estimate is down to 1.3% from 1.8% two months ago.
The same factors have affected other regions but the eurozone has been particularly hard hit by global malaise and Wolf argues that the lack of options from the central bank limits the ability to cushion the political system from economic blow-back. The ECB doesn't have many options if a recession hits.
The painful truth is that the eurozone is very close to the danger zone, as the combination of persistently low core inflation with the recent economic slowdown shows. It is easy to understand why the ECB felt it should halt asset purchases: it wanted to prove that this was a tool it could use in exceptional circumstances and then cease to use.
Yet the constraints upon effective action - both monetary and fiscal - are a permanent danger to stability. It would take just one sizeable negative shock to put the eurozone into another severe crisis. It would be far better if it were much further from the danger zone, especially on inflation. To counter the claim that further unconventional policy is either unwise or illegal, the ancient Romans would have given a simple reply: the safety of the republic is always the supreme law. If the system is not safe, nothing is.
For me this certainly isn't anything groundbreaking. The market has already priced in a move to the sidelines for the ECB. It's just a matter of Draghi & Co. managing the climb-down. The better question is how bad it will have to be before QE restarts.
