Reasons for Brexit, no’s 32 & 33

In the time-honoured manner of all central bankers following an illogical strategy, yesterday Mario Draghi of the ECB shrugged off the failure of eurozone QE1, and promptly began dropping heavy hints about QE2.

It was in July 2014 that the Financial Times pronounced the euro economy “in need of some QE”, it having failed spectacularly around the world on 13 previous occasions.The FT opined that the “recovery” in the zone had been ‘weak and uneven’ – moneyspeak for in recession. So in March this year, Mario’s monster money-throwing bid began to take up what he called ‘sizeable slack’ in the economy – bankerspeak for a depression.

The then BBC economics editor Robert Peston said it would “push away any risk of deflation” and provide “an injection of confidence to markets”. It didn’t. But it did cost a mind-boggling €1.1 trillion – that is, eleven hundred billion euros. What did appear was a lot of guff about the eurozone ’emerging from recession’ – repeated so many times by the old business press, the feeling gradually took hold among investors that some sort of recovery – led by Spain hahahahahaha – was taking place.

By September this year, however, articles began dribbling out suggesting not all was well: QE was having “less impact that the two further rate cuts” said moneymovesmarkets. Lending had gone up and prices had gone up (that’s supposed to be good news these days) but economic activity, um, hadn’t. So there was more credit around, but things are costing more….and employees are earning less. Or unemployed.

A fortnight ago, ECB Executive Board member Peter Praet referred to a “seeping pessimism” in the ezone. In response to this, yesterday Draghi told his audience “We may well change the size, the composition, the design, of all our monetary-policy instruments, as needed”. That was crystal clear, allegedly.

In fact, officially Draghi has only used at most 42% of his war chest, but for some reason everyone’s deciding to call it QE2….I suspect because it sounds like something new is being done. The markets were not impressed: the euro dropped 2% against the Pound. During the period when things were supposed to be ‘turning the corner’ in Europe, its value has now dropped net from 1.31 to 1.39 to Sterling.

What Draghi evades at these sessions is any acceptance that external conditions have worsened dramatically: itself already uncompetitive on both price and quality (except of course in Germany) the eurozone now faces collapsing demand in the Brics, a China in crisis, slaughtered Russian oil prices, and a clearly discernible falloff in World trade.

Last January, Reuters described the euro as being ‘in the last chance saloon’. Bloomberg is now calling this hastily repackaged boost ‘a line in the sand’. So having legged it out the back of the saloon, we’re making a stand in the sand. Next stop, no doubt, will be a jump in the river.

But it’s not just the economy that’s refusing to obey the wave-reversing commands of monetarism gone mad. Greece having been temporarily popped back in its cage ready to be sold off, the People are at it again I mean will they never learn?

This time it’s Portugal. Three weeks ago, Prime Minister Passos Coehlo felt vindicated when the electorate gave his coalition a majority in the elections. Except that isn’t really what had happened: the anti-systemic Left Bloc, aligned to Syriza and Podemos, got 19 seats, the communist party 17 seats, and the mainstream Socialist opposition 85. Unusually for the Left, the three have since taken a leaf of of Syriza’s book and formed an alliance. Catarina Martins, the Left Bloc’s chief, told the media that Portugal must “choose between dignity and the euro.” The ECB/Troika hard line against Alexis Tsipras is delivering, as I expected, a bitter fruit upon which Brussels-am-Berlin must now chew.

Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, is implacably opposed to further pay cuts for public workers, and insists that the new Left Coalition should be in power, having as it now does a clear majority ahead of the Troikanaut Right.

It was a tricky one for President Anibal Cavaco Silva, because the Left did not go into the election as ‘Syriza the Coalition’, and so cannot strictly speaking be said to have a mandate. Last night the President took this escape hatch and reappointed the Right’s coalition leader Pedro Coelho as prime minister. Which is fine except that the Left will now bring a no-confidence motion and the Government will fall. We assume.

Portugal is a basket case whose recent export performance (as usual trumpeted by the Sprouts and the IMF as ‘a heroic triumph’) is in fact a narrow one likely to produce no more than a small scratch on the surface of its combined 370% of gdp debt level.

It’s yet another reason to Vote Leave in next year’s UK referendum on EU membership. As is the economic flatlining. And more to come before long in Italy and Spain.

Yesterday at The Slog: The Bendt Longbollocks saga and other stories