A Sluggish Recovery In The Economic Recovery Of The European Market

A recent speech by the European central bank governor Delagi made the market seem to smell a further stimulus, triggering a sharp shock in the European market, and the euro dived for about 80 points against the dollar, temporarily below the 1:1.13 barrier.

Since then, with the European Central Bank's "rumor" and market instinct rebound, the euro exchange rate has gradually recovered the fall gap, as of June 28th closing, the euro to the dollar exchange rate closed at 1:1.1378.

Since the outbreak of the global financial crisis in 2008, Europe has been one of the longest time dragged by the crisis.

At that time, emerging markets, which were far from the crisis, quickly got rid of turbulence after the outbreak of the crisis and then turned to strong growth, thus becoming a new engine of the global economy.

As the source of crisis, the United States consolidated its economic situation in only two years, and achieved relatively strong growth for seven consecutive years.

In Europe, not only did the GDP shrink by 4.5% in 2009, but also the sovereign debt crisis and deflation risk continued, and the economic recovery continued to be weak.

To boost economic growth and inflation in the euro area, the European Central Bank has launched a huge stimulus package in terms of price and quantity in two aspects.

Since the introduction of "negative interest rate" into the monetary policy framework in 2014, the ECB's deposit convenience benchmark rate has been lowered for the four time. At present, it has remained at -0.4% level, and the main refinancing benchmark interest rate has also been reduced to zero interest rate.

This means that European banks put money in the central bank, and 1000 euros will pay 4 euros in deposit fees, while borrowing money from the European Central Bank is free.

At the same time, in order to invest more liquidity in the market, the European Central Bank has launched trillions of euros in the quantitative easing program, most of which are government bonds.

Nevertheless, the liquidity situation in Europe has not improved significantly.

Statistics show that European banks are willing to pay fees to put money in the central bank rather than lend money.

The liquidity trap has been around for quite some time.

Although more than 2 trillion and 300 billion euros of liquidity is invested in the market by buying government bonds, the effect of "water injection" on the real economy is not obvious.

Until the end of last year, the euro area inflation rate exceeded the threshold of 1%.

Since the beginning of the year, the European economy has seen a good growth momentum.

The euro zone GDP grew by 1.9% in the first quarter, and its growth rate was 0.1 percentage points higher than that of the same period last year.

From the perspective of GDP composition, residents' final consumption expenditure remained stable. In the first quarter, the euro area grew by 0.3%, and the fixed capital formation and exports fluctuated in the quarter to quarter ratio, which increased by 1.3% and 1.2% respectively in the first quarter.

The improvement of inflation may be an important basis for the market to judge the ECB policy.

In February, the euro area consumer price index (HCPI) rose to 2% year-on-year, basically reaching the central bank's target level.

Because of this, some member states have repeatedly suggested that we should consider gradually reducing the stimulus policy of quantitative easing.

In June 25th, the European Central Bank's Management Committee and the German central bank governor Wiedemann said in an interview that the euro area's economic growth and inflation were all moving in the right direction. At present or close to the time when the European Central Bank began to discuss the end of the stimulus policy.

But the most influential market is Europe.

Governor Delagi.

In June 27th, Delagi said that the inflation pressure in the euro area was affected by global factors, but it was only temporary. In view of the fact that inflation has not yet reached the goal of the European Central Bank, a considerable degree of stimulus is needed.

The speech was interpreted by the market as the possibility of further stimulation, and the mood of the euro dropped rapidly, triggering a rapid decline in the euro exchange rate.

Looking back to the outbreak of the global financial crisis, a series of economic stimulus policies adopted by countries all over the world, "time for space" is the core of policy.

Especially in the US, the irritation of price and quantity.

"Combined boxing" has laid an important foundation for the subsequent economic recovery and steady development.

But it may be a series of shocks, such as economy, finance, sovereignty, politics and so on. The stimulus policy in Europe has not created enough space for getting out of the mire of crisis.

The stimulus policy is like taking medicine. Too long time can lead to excessive dependence and even produce "drug resistance" and "drug resistance".

The distorting consequences of the long negative interest rate policy on the European banking industry have emerged.

On the one hand, in order to make up for the squeeze of the negative interest rate policy on bank profits, some European banks have adopted a more radical experience strategy, substantially increasing leverage, ignoring risks and pursuing returns, resulting in a loss.

For example, Deutsche Bank, Germany's largest bank, lost 6 billion 800 million euros and 1 billion 400 million euros in 2015 and 2016 respectively.

On the other hand, under the negative interest rate intervention, some banks have not only increased their investment in the real economy, but have been more vigilant in some areas and areas, so that there has been a financial crisis.

The problem.

The policy of quantitative easing will also distort the market.

The European bond market itself is a structured and distinctive market.

German national debt and Greek national debt are two extremes.

Buying Greek bonds will undoubtedly raise questions about the safety of policy funds, and buying German bonds may have crowding out effects on commercial institutions in the high quality asset market.

According to the information previously disclosed, the proportion of the purchase of debt by quantitative easing is highly related to the proportion of the contribution of Member States, which leads to the unreasonable distribution of capital flows in the region, and may even aggravate the degree of financial fragmentation.

The crowding out effect and fragmentation of debt buying behavior may further exacerbate market differentiation and stimulate some financial institutions to pursue high risk and high returns.

Since the outbreak of the global financial crisis, there has been fierce controversy over the "salvage policy".

In particular, the United States "sick", the global "take medicine" is also questioned.

The negative impact of Europe's long-term reliance on unilateral stimulus policies has come to a time of review.

The short panic in the market caused by Delagi's speech is an excellent example.

Europe is in the stage of major changes in the political structure, economic environment and financial market. It may be hit hard again, and perhaps it will break through before it can take a turn for the better.

The cost of time is so precious that it will be too much to lose.

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