麻豆传媒

麻豆传媒 — I have been following the events of the last few weeks devoting particular attention to the woes of the Euro and to how those woes ended up affecting the macroeconomic policies of "satellite" states previously deemed to be immune from the crisis (Switzerland) or perhaps even benefiting from it (Denmark). Both these countries had been maintaining a peg to the Euro and for both countries maintaining this peg had become increasingly difficult and expensive --- in the face of continuing flight to quality towards their financial markets and in light of market expectations of a depreciating Euro in the wake of the planned QE-like operations by the ECB.

Importantly, I believe that the Euro depreciation is also by itself an intermediate policy tool the ECB has been using in the last few months both to stimulate the export-driven segments of peripheral economies still hampered by weak demand and to halt deflationary pressures. The strong appreciation pressure experienced by the Swiss franc and the Danish krona are the collateral damage, if you wish, of this currency policy of "weak Euro." Discussion of this policy and its implication for Euro-area economies seems to have received less attention and space in the media.

Perhaps, as importantly, the recent events in the currency markets suggest that it has become increasingly difficult for small countries to pursue quasi-independent monetary policy while attempting to maintain parities or currency stability relative to the currencies of such juggernauts as the Euro-area and the U.S. This should suggest caution to anyone thinking that a Greece freed by the shackles of the Euro may be able to pursue monetary policy aimed at stimulating the local economy while ensuring some level of price stability and security to Greek citizens.

A Euro-free Greece looks more likely to be quickly engulfed by a vicious spiral of a rapidly depreciating new-drachma, hyper-inflation, shrinking real wages and demand, and unemployment; drachma depreciation and hyper-inflation would certainly benefit Greek debtors (in so far as the Greek government unilaterally converted its Euro liabilities in the new drachma at convenient terms): debasing the currency to wipe out debts is after all one of the oldest tricks in a government's sleeves. Yet, this is unlikely to help the vast majority of Greek households living with fixed nominal salaries and likely to be exposed to spiraling inflation and debasing of their savings. In addition, this would obviously hurt Greek creditors, many of whom are continental European financial institutions and households.

Of course, this says nothing about setting a precedent that would then be instantaneously discounted into the prices of any financial security (bonds and stocks) issued by struggling Euro periphery countries and firms (from Spain to Italy and perhaps even France), raising their cost of capital and further pushing them close to the edge of disaster.

In short, notwithstanding the electoral posturing, I do not believe it likely that Greece may leave the negotiating table (or the Euro) nor that Germany may facilitate such a decision. In the short term, I expect that the incoming QE announcement may disappoint markets, as the rumors about its size do not suggest "shock and awe."

More importantly, however, is the following long-term implication of both the incoming QE and the recent defeat of the legal challenge by a group of German citizens opposing ECB's bond purchases at the European Court of Justice: the ECB, as is currently run by Draghi, will be free to pursue any monetary policy it may deem adequate and necessary to achieve monetary stability within the Euro area, where monetary stability is no longer going to be narrowly defined by low inflation targets --- as instead advocated by some continental European countries.

The newly-gained freedom by the ECB to do its job as a modern central bank may be the best outcome we may see in the next few months. It is the wish of most EU citizens that the ECB will use this freedom wisely and appropriately.