The European Central bank has signaled the end of its asset purchase program and a possible rate hike before 2019. After more than 2 trillion euro of purchases and zero interest rate policy, it is overdue.
The massive quantitative easing program has generated very significant imbalances and the risks outweigh the questionable benefits.
The balance sheet of the ECB is now more than 40% of the Eurozone GDP.
The governments of the Eurozone, however, have not prepared themselves at all for the end of stimuli.
Rather the contrary.
The Eurozone states often claim that deficits have been reduced and risks contained. However, closer scrutiny shows that the bulk of deficit reductions came from lower cost of debt. Eurozone government spending has barely fallen, despite lower unemployment and rising tax revenues. Structural deficits remain stubborn, and in some cases, unchanged from 2013 levels.
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