In preparing my annual forecast for Inside Business, I predict the European Central Bank will be forced to engage in quantitative easing in order to end the crisis. This means they will buy any and all bonds issued by European governments, just like our Fed bought all bonds issued by our Treasury.
The new head of the ECB, Mario Draghi, has said he will not do this, but I don’t believe he will have a choice. The bond vigilantes will force it. However, he made an interesting statement this morning.
While the ECB will not buy all bonds, they will not object if the banks buy all the bonds. So, the ECB loans the banks all the money they want, and the banks use it to buy all the government bonds they want . . . very interestng! It would probably not work quite as well, because individual banks may come under pressure from both the government of their country and their own shareholders. But, it shows that he sees the need for quantitative easing, whether carried out by themselves or the individual banks.
This is a hopefull sign.