- With the ECB unable to rely on the US Fed’s gentle tightening path to do the work for it, expect further forays into the ‘unconventional’, including a step-up in QE &, importantly, even more negative rates.
- But, while helpful in addressing the symptom, defl ation, Mr Draghi cannot be expected to solve the underlying problem - a monetary union devoid of economic union. This will take years.
- We update our Competitiveness Analysis to the end of 2015 to show the progress so far. As an amorphous bloc, the zone is after five years of austerity regaining competitiveness lost since the euro.
- Yet, shifts in individual members’ competitiveness are still too disparate to rule out further pressure. Germany is the biggest ‘winner’, & Spain & Italy’s positions are improving rapidly. But, France is lagging, & a Greece debt-restructuring looks inevitable.
- Encouragingly, market fall-out from Greece should be contained.Either way, the ECB is ready to act - whatever the US Fed’s doing...
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