Yes, you heard right, banks will be punished for storing money with the ECB. At the press conference announcing this additional move of government intervention in the market, some interesting things were said.
But of course. It had to happen. Eventually a journalist had to ask about the fate of German savers. And lo, it has come to pass. Mr. Draghi’s response: the rates have been changed for banks, not for people. This is aimed at restoring jobs and promoting recovery.Of course. It's all about promoting recovery. No mention is made of the hopelessly anti-business regulations that have crushed the recovery and led to this punishment. Except in the WSJ live blogging, of course.
What is the tipping point for European banks? At what moment does their cost of funds get so low that they can’t afford NOT to lend to homebuyers in Spain and small businessmen in France? This is the question the ECB is exploring.So, to recap, the French government, to take one example, has made creating jobs and running business incredibly difficult. It's far better just to stash your cash than to risk it creating something. Now the ECB is punishing you for stashing you cash.
As eye-catching as negative rates and a new LTRO are they are still only incremental moves in search of that elusive tipping point. Unless they are willing to pull out a giant bazooka of deeply negative rates and outright bond purchases – would they ever? – the risk is that they never find that point.
Broken record warning: The real problem there is that Europe’s political and structural reform process has stalled. The micro ingredients for growth are not there. You can make the cost of funds insanely cheap in nominal terms but if root demand is being squeezed by other forces, it will still be too expensive.
In effect, the ECB is driving banks and businesses out into the open where they can be harvested by the national governments in the name of Social Justice.
Tally ho! Let the hunt begin!