Posted Jun 7, 2018 by Martin Armstrong
There is much hope buzzing around in Europe that Draghi is planning on ending Quantitative Easing. This is giving the Euro a bit of a lift in hopes that higher interest rates will stem to drastic capital outflows from Europe that resemble rats fleeing a sinking ship. Back on May 14th, Mario Draghi said the European Central Bank would avoid surprising investors with sudden changes to its stimulus plans. He further stressed that inflation was still too low and U.S. trade policies meant that a stronger Euro was a concern. Meanwhile, back in April, the ECB hinted that they would wait until the July meeting to talk about ending the QE program.
Meanwhile, the new Italian government has outlined the first guidelines of its economic policy. The new Prime Minister Giuseppe Conte said Wednesday that he wanted to organize the cooperative banking sector differently than the previous governments. His plan will most likely meet with considerable resistance from the financial sector and most likely Brussels. He seems to be toying with the idea that he wants to separate the banks as Glass-Steagall did during the aftermath of the Great Depression. He wants the future investment banks to be separated from retail banks.
The banking crisis in Europe has been perpetuated by the fact that there is the prejudice to actually merge economies despite a central government structure in Brussels. In the USA, the bad loans were taken from the banks whereas in Europe that has not taken place. The Italian banks are still sitting on a huge mountain of bad loans. If the ECB had actually created a program like the USA to take the bad loans from than banks, then this would have resulted in a disparity among member states. The southern states would have received a bailout at the expense of the northern members. This is the same structural problem of the Euro which infects almost every crucial policy to actually make the Eurozone function as a collective economy.