Last Thursday, Mario Draghi, the current head of the European Central bank, soon to be replaced by Christine Lagarde from the IMF, announced a parting gift to banks and financial markets. The ECB decided to reintroduce its bond purchasing programme in order to inject yet more billions into Europe’s banks in order to persuade them to lend onto industry and boost lagging growth.
This was the return of quantitative easing (QE) by the ECB. But this time there was to be no time limit on the E20bn monthly of ECB purchases. It was to be forever – QE to infinity! Also, the ECB would purchase not just the government bonds of debt-ridden Italy, Spain etc but also much riskier assets like corporate bonds.
Draghi also announced a new two-tier interest rate system for bank cash reserves held at the central bank. These reserves have spiralled as banks took cash from…
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