Endless QE in Europe!

In an interview with France 24 English today, the former president of the European Central Bank and current member of the Board of Directors of the Bank for International Settlements, Jean-Claude Trichet, tried to offer hope with regard of the consequences of Brexit (Former ECB chief says UK ‘shot itself in the foot’ with Brexit). Mr Trichet had been ranked by Newsweek as one of the five most powerful people today.

While Trichet tried to do his best in order to calm down people’s worries, he could not avoid mentioning the fact that he expected volatility to persist on the financial markets. He did not, however, want to specify, how long he expected this volatility to last.

Another interesting thing that Mr Trichet mentioned was the fact that the Europen Central Bank still had means of stimulating the economy, namely, providing unlimited liquidity to all banks in the Eurozone. Read that as “endless money printing”. He also talked about quantitative easing, or QE. QE usually means that the central bank is buying financial assets, such as debt (e.g., mortgage debt, car loans, etc.) and bonds, from financial institutions.

So, basically, Jean-Claude Trichet is sending a message to the markets not to worry, that the European Central Bank will keep printing money, and buying debt, meaning that said banks can keep making reckless decisions, without any consequences. And, if the worst was to happen, the European Union, has legalized, as of January 1 of this year, bail-ins. This literally means that those who keep their money in the banks, as well as the owners of bank stock and/or bonds, will pay for the bank’s recklessness in the case of need. This law has already been implemented, and not even in the poorest memebers of the EU, but in Austria, of all places, where the senior bondholders of the HETA ASSET RESOLUTION AG had to pay for the $8.5 billion hole in the balance sheet of the failed bank. Their bond holdings were reduced by a whopping 54%, and the most they can expect to recieve for their investment would be €0.46 for each euro they were owed, and even that won’t happen before the year 2020.

As I had mentioned in my previous blog posts, we are hearing more and more warnings about the volatility of the world economy and the financial markets. And even though Jean-Claude Trichet’s interview was intended to calm down the spirits and worries of the every day person, it still did not sound “calming” at all.


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