Mario & The Jets? Is QE Coming To Europe?
The European Union (EU) is trying to raise funds. Technocrats foresee the need to inject billions of euros into the economy. With Mario Draghi speaking at Jackson Hole this week, could it be Quantitative Easing is on the horizon for the EU? Many believe so…
Europe’s non-recovery has been a big story in the wake of the financial crisis. Things are getting better. Europe is politically fragmented. How could the new bloc not be improving? Southern states are not recovering and they are causing a strain on the bloc as a whole.
The European Commission, the EU Executive and the European Investment Bank (EIB) have all been tasked with creating projects that would create growth. They must also figure out how to finance them.
Four ideas about how to finance the projects were brought to the table. The Italian camp wrote a paper on new financing tools for companies, a Franco-German proposal on how to boost private investments, a Polish proposal on a join EU fund and a call from European Commission President Jean-Claude Juncker for a 300-billion-euro investment program to fix the EU economy. The European Central Bank’s plan for a market for asset-backed securities is yet another idea on the table.
The EU economy generates one quarter of global output and grew by just 0.1% last year. Its official jobless rate is double the US’s official rate.
While German wants budget cuts, the rest of the Union wants investment. France and Italy are both pressuring Germany to loosen its monetary policy and increase public investment.
German Finance Minister Wolfgang Schaeuble support investment but scoffed at calls for Berlin to spend more to boost the EU economy.
The prospect for QE in the EU has major implications for the US dollar. We could see a great opportunity arise to buy precious metals at discounts. For those gold holders out there, trading in some of your gold for silver will be a good trade. After all, as I type this, the gold and silver ratio is something like 66 to 1. So, keep an eye on Jackson Hole, as the US could also announce it is raising interest rates. If both were to happen, I still imagine there would be relative strength in the dollar. With the behavior of gold in recent weeks, it would seem silver is the safehaven comparatively right now.