ECB is condemned to buy bonds like the flying Dutchman to sail on the oceans.

“The European Central Bank said it will keep its vast bond-buying programme running at a high pace despite rapidly rising inflation” FT Oct. 28 ECB.

Today Greece is borrowing at 1% a year (10 year gov’t bonds) (debt ratio 210% of GDP), Italy at 0.9% (debt ratio 157%), France at 0.2% (115%). All these countries are borrowing at a lower interest rate than the US (1.5%). If this is possible, this is not because there are excess savings over investment (Bernanke), this is because the ECB is financing obligingly their fiscal deficit.

The ECB has bought the entire net supply of eurozone government debt over the past two years, 40% of EZ GDP. Let’s assume that the ECB will not buy any more EZ countries’ public debt, do you really think that the 10-year bond rate will continue at this artificially low rate?

The ECB by buying all public debt issued is canceling the traditional role of bond vigilantes. Private investors who sell all their bonds when governments are implementing an irresponsible fiscal policy. The role of the ECB consists to prevent (momentarily) market forces to prevail.

Madame Lagarde and the ECB board take their desires for reality when they say that tomorrow the EZ inflation rate will be lower than 2%.

The limit to the irresponsible purchase of government bonds by the ECB is inflation (ECB has a mandate, its mandate has nothing to do with green investments, but with a target on the inflation rate).