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I think the German government would dispute your analysis of current ECB policies. Draghi's policy of keeping interest rates ultra low - and QE on a massive scale - has much reduced the cost of financing Ireland's (and Greece's') historically high sovereign debt to the chagrin of German savers, who haven't been getting any "return" on their savings.

He has resisted incessant pressure from German Bankers and policymakers to end QE and increase interest rates so long as inflation remains below the ECB target rate as close to but below 2%. As a result, inflation has been rising, ever so slowly, and by doing so also reducing the real cost of financing historic debts.

It may not be much, but that is about all the ECB can do to help net debtor countries vis a vis net creditor countries - absent the issuance of Eurobonds, which Germany absolutely refuses to allow - as it would allow (say) the Greek Government to piggy back on Germany's credit rating and ultra low sovereign debt interest rates.

From a German moral hazard perspective, high interest rates is the penalty highly indebted countries should pay as punishment for past profligacy - both to reflect the higher risk of default and as a deterrence from future profligacy.

Draghi hasn't been playing that game.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Jan 30th, 2018 at 05:29:15 PM EST
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