In Europe there is still the memory of that second recession, which, driven by sovereign risk, worsened the crisis in a good number of countries in 2012, punishing in a particular way those in the south. Since then, the eurozone is a patient accustomed to living with intensive medical treatment. When it seemed that part of the pharmaceutical prescription was going to be dispensable, new signs of weakness make it impossible. The decisions taken by the European Central Bank last week suggest that it is necessary to avoid a new recession at all costs. They also show the inability to get out of a situation of financial abnormality that lasts a long time. They know in the ECB that there is a risk of relapse in the eurozone economy, hooked to its monetary oxygen.
A year ago it was thought that the eurozone would grow 1.8% in 2019 and this forecast has already been lowered to 1.3%. The loss of bellows in other areas, such as the United States, has been milder, with an expected growth (2.4%) that almost doubles the European. Surprisingly, the absence of critical messages from members further north of the single currency area, where savers are up to the cap of reduced rates that do not yield to them. But Germany, the best example, is also one of the countries that suffer the most from the commercial tensions and the most stubborn ones in case things get complicated with Brexit. Far from popular belief, the ECB also supports Germany. 23.8% (half a billion euros) of public debt purchased from Frankfurt is German.
Inflation goes on a spree, nobody finds it. And there appears Draghi pointing out that interest rate hikes will have to wait, at least, until 2020. He will remain forever as the president of the ECB of the quantitative expansion because, when it came to dismantling it, it gives him another twist that temporarily covers more beyond his mandate. The challenge of the true dismantling of the quantitative expansion remains for its successor. In the ECB they do not see clearly that the European economy can take out of the pocket the 700,000 million euros that the banks now have in long-term financing. Hence the new TLTRO-III (liquidity to prevent credit from sinking). Nor do they see that the peripheral countries are very prepared to assume a higher cost of debt, no matter how much it bothers the savers of the north. And glasses are not necessary to appreciate the concern in Frankfurt about the situation in Italy and, in particular, its banking. The possible increase in the cost of debt is a global problem. It is striking that supervisory institutions on a global scale have initiated a procedure to analyze issues as sensitive as the risk of leveraged loans. The least benefited of the last decisions of the ECB, however, are the banks. The credit that can be given is the one that allows the official liquidity, but with hardly any profitability. Low rates, low margins. There may be no relapse, but no encouragement.