Central bank interventions have affected valuations across asset classes. The expectation of withdrawal of monetary stimulus already sends tremors through global capital markets. Also in Europe the boundaries between fiscal and monetary policies are becoming increasingly blurred.
The initial EMU 1.0 Model, based on the Maastricht treaty (central bank independence, price stability as a sole objective and the no-bail out principle), seems to have been abandoned. How will the future of EMU look like once public debt monetization becomes the name of the game? Once member states start to compete in extracting credit from their national central banks, the future EMU 2.0 model might start to drift towards a model that was experienced during the Ruble Zone period. Stronger or weaker EMU members might start to consider leaving the monetary union as a result. Could the EURO turn into a divisive force in Europe?
The structural design weaknesses in the current monetary framework in Europe are already visible. Are they understood by the political leadership and society at large? Believing that the debt crisis is over appears to be wishful thinking and an excuse to “kick the can down the road”. At some stage, it will hit a wall.
Thomas Mayer will share his valuable insights into the precarious path the EMU might walk down. What are practical solutions to avoid this scenario? In the following discussion we will shed some light on the approaches that have been taken by the other large central banks and the resulting risks for global cross asset valuations.