WHO'D be a central banker? As soon as you restore bond and equity markets to calm or even optimism, investors start fretting about something else.
Most major Western economies have returned to economic growth, and countries that were causing sleepless nights just a couple of years ago, like
This is in large part due to the
So why are there growing rumblings from some quarters about vicious circles, or even "circles of confusion" (as Lloyds strategists have put it)? First, when markets are divorced from the fundamentals, eyebrows start (rightly) being raised. The flight into peripheral bond markets has been one of the most prominent trends of this year, as
And it looks as though companies are still hoarding cash, rather than spending it to create jobs or otherwise give a fillip to the real economy. Capital expenditure at the big non-financials fell by 1 per cent in real terms last year, and is expected to shrink by another 0.5 per cent this year, according to ratings agency S&P. Further, the euro continues to be strong enough against the dollar to make it a concern for poli-cymakers, and potentially discourage investment.
Draghi's pledge to do "whatever it takes" to save the euro helped calm markets in 2012, but may ultimately have been self-defeating. Many now expect quantitative easing (effectively money printing) from the central bank, to the extent that Draghi may be forced to carry it out whether he wants to or not.
Still, for serious consequences, the market would have to seriously challenge the ECB by betting against it. There doesn't seem to be appetite for that, yet.
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