Wolfgang Schauble’s fine line on the Eurozone’s QE – CNBC Comment
I had to laugh. Watching the CNBC panel at the World Economic Forum last Friday in Davos, the German finance minister Wolfgang Schauble stole the show in his dry, wry way. Having been one of the biggest critics of the European Central Bank’s (ECB) QE programme from the start, he walked a delicate line defending the German position a day after the ECB unveiled its €60bn a month stimulus measures.
He said he respected the independence of the ECB: “I don’t comment on decisions by the ECB. Never ever.” He also reiterated that Germany wants to see the Eurozone stick together: “We did whatever could be done to support Greece through difficult times, again and again…” And when George Soros offered his views on Germany, Schauble stepped in, saying the billionaire investor perhaps wasn’t the best person to ask: “If I am asked on German fiscal policy, I have to explain, because I know it better than anyone else”.
Soros, incidentally, was following a more cautious line. He said the ECB’s move could have unintended consequences for the market, creating possible asset bubbles. But his main concern was that QE would make the gap between the rich and poor bigger, as it would benefit the owners of assets. And Schauble and Soros agreed that it isn’t smart only to rely on monetary policy. As Schauble said: “I don’t believe monetary policy alone can produce growth”.
While monetary policy might not be enough to ensure growth, I always like to say: “Don’t fight the trend, my friend, as it’s your friend until the bend in the end.” And indeed, it seems almost all asset classes are getting a taste of this. Peter Oppenheimer of Goldman Sachs is one of the many experts who have said that ECB measures will give even more support to stocks. But it’s not just stocks. We ponder where to hunt for yield so often. What hunt? What yield? Well, apparently, a hunt that includes record low yields across the board in debt markets. Bonds continue to indiscriminately hit record highs.
And the euro is still going bananas after the ECB announcement. At the end of last week, for the first time since September 2003, the euro dropped below $1.12. The question is whether parity or sub-parity is a possibility for euro-dollar this year. While a much lower euro continues to be a headache for the Danes and Swiss, it is great news for the ECB. European exports suddenly look more attractive and higher import prices lead to higher inflation. But if we hit parity, I wonder whether we’ll be complaining about it having dropped too quickly and the upset in international trade balances it’s causing.