14 January, 2015

Easing

As I write, the pound sterling has risen dramatically against the euro.

The reason is that the markets believe that the European Central Bank will commence some quantitative easing at its meeting on 22nd January.

It would do this by creating money and using it to buy government securities whose holders, principally banks, woud then have cash they could invest in their economies.

Three days later, on 25th January, is the Greek election. The likely winners, Syriza, claim they will repudiate part of the Greek government debt.

So the ECB would be buying stuff which it knows in a few days might be worthless.

Doesn't seem too honest to be.

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