As the ECB brings its asset-purchase programme to a close, it is worth reflecting on the continuing political upheaval across Europe. It serves as an important lesson to those who champion inflationary policies. Proponents of quantitative easing (QE) no doubt expected the printing of €2.6tn of new ‘money’ to have, at least for a period, worked to pacify the masses over which the ECB presides, by boosting demand. Detractors of unsound money and credit are anything but surprised by heightened political instability throughout the eurozone.
Bubbles are instruments of redistribution. The bubbles inflated by QE have only served to exacerbate inequality; those with assets have seen their wealth inflated, while those without have seen them become unaffordable. Politicians have been complicit, with inflationary policies perpetually alleviating them of the need to address structural issues requiring difficult choices and reform.
However, such short-termism has only exacerbated structural challenges. By preventing the purging of misallocated capital, and sustaining excesses, central banks have ensured the factors of production are structured in a fashion that does not produce the output necessary for governments to deliver on their respective social contracts. The French ‘Gilets Jaunes’ are the latest manifestation of this societal sclerosis.
Brendan Mulhern, global strategist. Newton, a BNY Mellon company