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Investors like the idea that the ECB will stop the financial system seizing up, which would have frozen the rest of Europe too. But take that risk away, and eurozone financial assets still hold less appeal than those in the rest of Europe.
Nonetheless, Mr Draghi’s generosity has already pushed down interbank lending rates to below the ECB’s policy rate. Monetary policy is as easy as it has ever been.
The result is that rates are far too low in Germany – they should be more than doubled, according to BNP Paribas calculations. A similar cheap money policy seems to be paying off in the US. The Federal Reserve’s zero rate has been too high for three years, but may finally be providing cheap money. The Taylor rule, based on unemployment and inflation, has offered a reasonable guide to Fed policy in the past, and now suggests rates are too low. The US is hardly on a spree, but cheap money fuelled the equity and housing boom of the 2000s. It is no coincidence that US housing markets are showing signs of recovery.
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