Central Bank Boosts Bond-Buying, Sparks Economic Rally. The European Central Bank expanded its bond-buying initiative from €750 billion to €1.35 trillion, a move that sent European stock markets higher and pushed the euro to its strongest performance against the dollar since March.
Under the plan, the bank will buy European government and corporate debt through June 2021. It also will roll over maturing bonds through 2022.
The increase lifts the bank’s economic rescue plan to a level closer to that of the U.S. Federal Reserve, a change that many European economists had called for.
The bank added to the program because “the euro-area economy is experiencing an unprecedented contraction,” said bank president Christine Lagarde.
She noted the economic plunge might be ending but added that the recovery so far “has been tepid compared to the speed at which indicators plummeted in the preceding two months.”
The bank has forecast an 8.7-percent contraction this year, followed in 2021 by a 5.2-percent expansion.
To counter such a sharp contraction, the bank may need to add another €500 billion to its program if it is to keep buying bonds at its current pace for the next 12 months, said economist Frederik Ducrozet with Pictet Wealth Management.
U.K. Central Bank Mulls Negative Interest Rate. After resisting the move for years, the Bank of England is considering lowering its interest rate into negative numbers to spark the nation’s economy as it enters what is expected to be a long, slow recovery from the global economic shutdown.
Andrew Bailey, governor of the Bank of England, confirmed the policy review is underway.
The bank already has lowered its interest rate to 0.1 percent in March, accelerated its bond-buying, and is showering cash on banks and businesses.
Last month, for the first time in more than 300 years, the bank issued a bond with a negative yield. About 20 percent of Britain’s government bonds are now trading at negative yields in secondary markets.
The central bank sees few policy options left to try to goose the economy other than negative interest rates.
A negative interest rate means the central bank would charge other banks to keep their money there. Rather than pay the fee, the banks are expected to choose to lend the money and stimulate the economy, while charging borrowers interest and making a profit.
The central bank has resisted the move, in part, because a 2019 study of the impact of Sweden’s negative interest rates showed they shrank banks’ profits and thereby decreased lending instead of boosting it.
British banks’ balance sheets are strong, however, and the Bank of England has introduced support programs that could offset any damage to profits, Bailey recently said in testimony before parliament.
Still, negative rates could harm Britain’s standing as a financial hub and drive investors away, especially as the U.K. navigates a tricky economic separation from the rest of Europe, analysts say.
France Faces Dizzying Debt, Slow Recovery. France faces “vertiginous” budget deficits and national debt, according to budget minister Gerald Darmanian, who predicted a record budget deficit of 11.4 percent of GDP this year, compared to 3 percent in 2019. The government also has forecast an 11-percent contraction in GDP in 2020.
“Vertiginous” means “causing dizziness or vertigo.”
Including this year’s budget deficit, France’s total national debt could soar more than 20 percent this year to just above 120 percent of GDP.
More than ten million French workers, or about half the country’s labor force, are having their wages paid through a government scheme to avoid mass layoffs and an economic depression.
The aid already includes €8 billion for the automotive sector and more supports are expected after France’s 28 June election.
Germany Launches Major Economic Stimulus Initiative. Leading with a 3-percent cut in its value-added tax (VAT), Germany has become the first major European country to unveil a broad range of economic stimulus measures, including government spending and €130 billion in aid to businesses.
No other large country on the continent has shifted from emergency aid programs to fiscal policy changes to stoke economy recovery.
Before the pandemic struck, the German government had resolutely refused calls by the World Bank and other agencies to abandon its commitment to balanced budgets and to spend more to keep its own, and Europe’s, economy afloat.
The VAT cut will expire at the end of this year, at which time analysts foresee consumer spending shrinking again because “we can’t expect the crisis to be over by then,” said Clemens Fuest, head of the ifo Institute, an economic think tank.
The stimulus also doubled the subsidy for electric cars to €6,000 but offered no incentives to buyers of gas and diesel cars, disappointing the auto industry.
Families will receive a one-time payment of €300 per child and a reduction in electricity prices through a cut in the fee paid by consumers to subsidize renewable energy projects.
“We want to trigger a recovery that makes our country better, more sustainable, more climate-friendly, and more humane,” said Peter Altmaier, Germany’s economic minister.
TREND FORECAST: Once again, as evidenced by the facts, true economic fundamentals no longer exist in what the banking, business, educational, and political worlds fictitiously call “Capitalism.”
As with the United States, the dole-outs are as much money, lowest taxes, sweetest deals, and lightest regulations as possible for the Bigs… and peanuts for the peasants of Slavelandia.
Unrecognized by the business and mainstream media is the “Off With Their Heads” protest movements that will be sparking up across the globe when people lose everything and have nothing left to lose… and start losing it.
Again, as we see it, the only solution to the destructive trends is a Peace and Prosperity Renaissance… a march to a higher order of liberty, love, art, joy, and beauty.
