EA January 2015

ECB Launches $1.28 (€1.1 Trillion) Program to Buy Government Bonds


The European Central Bank finally launched (January 22) an unprecedented government-bond buying program – headlined as “quantitative easing” – to pull the European Union back from the precipice of deflation and stimulate economic growth.

The widely expected package calls for national central banks to buy their own country’s government bonds and thereby protect all Europeans from having to cover the loan defaults of profligate member-countries. ECB would, in turn, buy €60 billion ($69 billion) monthly in government bonds from the central banks starting in March. These purchases would continue until at least September 2016, or “until we see a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2 percent,” ECB President Mario Draghi said. ECB sovereign debt purchases would never exceed more than one-third of a country’s total debt issuance (the ECB holding of each type of bond would be capped at 25 percent). No corporate bonds would be included. Also, interest rates for four-year loans to banks were lowered by 0.10 percentage point, but other ECB borrowing rates were remained the same.


Perspectives: Cascading Consequences of Russia’s Conquest of Crimea

john barry 1Russia’s economy is cratering.  An SAS flight from Copenhagen to Poznan in Poland has suddenly to change course to avoid collision with a Russian surveillance aircraft roaming the crowded air-lanes of the southern Baltic with its identifying beacon switched off.  A flight from Finland had a similar near-miss two days earlier.  A third near-disaster came last spring, averted only by the skill of SAS pilots.  Tiny Lithuania (pop three million) is training and equipping 2,500 of its military of 8,000 as a ‘rapid-reaction force’ to respond swiftly to any incursion into its territory.

What connects these recent events?  Answer: Russia’s increasingly embattled President Vladimir Putin.


The U.S. Dollar: Caught between Fatal Attraction and Growing Rejection

jgrapinThe short term trend for the dollar is up. The recovery of the U.S. economy, and the combination of FED tightening on one hand and easing by the European Central Bank and the Bank of Japan on the other, creates a fatal attraction for the dollar. On top of this, U.S. sanctions against Russia push Russians and ruble holders to exchange declining rubles for dollars. Overall this situation will increase the value of the dollar, making it attractive for investors but more burdensome for American exporters.

This dollar surge, however, hides a longer term trend toward de-dollarization. Monetary diversification has become a key political goal for many governments, countries, and institutions.


Perspectives: 2015 Will be a Year of Transition for Internet Governance

patricia paolettaLate last year the Republic of Korea hosted the ITU’s Plenipotentiary Conference, commonly known as the Plenipot, in Busan, South Korea. The International Telecommunication Union (ITU) is an organ of the United Nations and meets every four years at a Plenipot to discuss any possible amendments to its foundational texts – its Constitution and Convention. Last month, The European Institute hosted a special program called The Busan Consensus: A Turning Point at which U.S. Ambassador Daniel Sepulveda, who led the U.S. delegation, gave the Korean hosts high praise for facilitating a successful outcome, from U.S. perspective, that emphasized private sector management of the Internet.

December also brought tidings of concern that North Korea (the Democratic People’s Republic) may have arranged the hacking of Sony Pictures in retaliation for its planned release of the comedy on Kim Jong-un, The Interview. The two actions, from countries divided geographically only by the 38th Parallel, provides a dramatic contrast in approaches by governments on Internet policy. In late December, North Korea’s Internet nodes suffered from several days’ disruption.