The irony remains that QE’s being done least where it’s needed most – the eurozone. One is doubtful of any sudden volte-face from Germany on fiscal/banking union, whoever’s tied to Merkel’s likely CDU-led coalition. Increasing concerns come from Spain’s dilemma, where fiscal inertia means funding strains, yet, with 56 per cent male youth unemployment, meaningful reform risks social unrest.
Greece needs an extra €3bn-€4bn (£2.5bn-£3.3bn), Cyprus’s terms need reviewing, and Portugal needs to extend its bailout past mid-2014. So, restructuring risk is not removed, no matter how punctuated the recession, or how smoothly Germany’s election goes.
Then there’s the UK, where the MPC’s choice of unemployment as the policy-yardstick seems as much a ‘puzzle’ as the puzzle it has posed them trying to explain it. Stripping this out, and the vague knock-outs (which are judgement calls) surely gets us back to the ‘flexible inflation targeting’ the MPC has been doing de facto for more than five years?
The Bank will carry on, only ‘flexibly’ controlling CPI inflation, and facilitating growth. Meantime, it’s over to the chancellor to keep hitting the housing button, and worry about it after 2015.
Neil Williams is a chief economist at Hermes
