The ECB’s creeping strategy shift: An analysis

While German inflation is climbing to record levels, inflation in Italy has recently fallen from 1.0% to an almost lethargic 0.9%. The ECB will see this as confirmation to continue the very expansionary monetary policy course for a very long time in order to also give countries like Italy a chance to permanently escape deflationary tendencies. At the same time, the strong increase in the money supply and the excessive liquidity in the Eurozone is leading to high nominal GDP growth, especially in Germany, and is thus increasing the disparity between the northern and southern countries of the currency area. Countries like Italy need high nominal economic growth to prevent the threat of over-indebtedness. In the past, this economic constellation would have led to a devaluation of the Italian lira - this option no longer exists. This makes a permanent transfer and debt union an increasingly likely scenario. In general, one has the impression that the ECB seems to be slowly moving into a new monetary policy regime that is ultimately more committed to political goals. As unpleasant as this may be from a regulatory point of view, this development does not necessarily have to be bad for stock markets.