Mario Draghi didn’t do it but Kim Jong-un did

Inauguration of the European Central Bank's new premises on 18 March 2015 in Frankfurt am Main, Germany. Mario Draghi (in the middle) cuts the ribbon. (European Central Bank Audiovisual Services).

Inauguration of the European Central Bank’s new premises on 18 March 2015 in Frankfurt am Main, Germany. Mario Draghi (in the middle) cuts the ribbon. (European Central Bank Audiovisual Services).

Last Thursday, Mario Draghi, the President of the European Central Bank, was unable to move the capital and money markets with his customary monetary policy Press conference in Frankfurt am Main. On the contrary, North Korea’s leader Kim Jong-un, a global castoff, did it the next day just by pressing a button. However, it took the test explosion of a most powerful nuclear warhead of 10 Kilotons to move the markets. Both those events happened last week and at first reading are completely unrelated.

However, they both had a quantifiable effect on the markets. The first had no effect at all while the second did move them. This comparison is meant to show, how vulnerable the overgrown capital markets of our brave new world may be, in view of unpredictable developments. On the one hand, markets had more or less discounted Draghi’s decision to leave monetary policy unchanged. On the other hand though, it’s quite impossible to foresee when and how the North Korean despot or any other outcast will decide to move the world, with a nuclear test or with anything else, as it was the case last week.

Unpredictability reigns

Judged from their results though, the two incidents are closely related as far as their repercussions are concerned. For sure if the North Korean dictator had chosen to do something more menacing, Mario Draghi would very possibly have been obliged to announce more money printing, in order to soothe the market turmoil Kim caused with his nuclear toy. What can be more frightening than a 10 Kiloton nuclear bomb test is very likely a larger one or one mounted on a strategic missile and sent to hit the water near South Korea or Japan.

As a matter of fact, this is the first time that a North Korean menace has clearly and directly moved the global capital markets. The Reuters news agency reported that stocks in Wall Street fell sharply on Friday, after the nuclear test in North Korea was detected. It drove the S&P index lower in the worst market day since June. In detail, the Dow Jones industrial index fell by 2.13% and the S&P closed 2.45% lower, while Nasdaq lost 2.54% at the last day of last week. Altogether, those three New York stock market main indexes had their worst week in months.

Kim likes plaguing the markets

Now, what if Kim Jong-un decides to explode his next nuclear bomb or whatever he is secretly machinating, at a time when the world markets are having a bad turn? He must have certainly noticed that his last Friday’s explosion has rocked the global economy. So, from now on he may choose to explode his devices at the worst timing for world markets, mainly targeting at the New York stock exchanges.

In this way, the capital markets, mainly the ones of the western world, may enter an era when their prospects will be made dependant on external, and thus rather unpredictable factors, to a much larger extent than today. As a result, insecurity may become the main guiding force of the systemically agile capital and money universe, at the same time destroying its effectiveness. Not without good reason then last Thursday Draghi said, “available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty”.

Draghi sees that

The careful reader would note the semantic use of the expression “so far suggests resilience”. Obviously, he is aware, that the global environment becomes every day more unpredictable and therefore more menacing. North Korea or somebody else may open the door for the world to enter in a new and terrifying age. Even worse, there might be a global power center ready to play with fire and try to use the Pyongyang lunatic or any other madcap for its own goals and further destabilise the global scenery.

As it turns out, the ECB seems to recognize the worsening of the global scenery, but appears unwilling to take more vigorous action in support of the ailing Eurozone. Draghi indirectly said that when he stated “our baseline scenario remains subject to downside risks”. Yet, he refused to take action now. The euro area’s central bank is still seemingly under the strong influence of the German financial orthodoxy, rejecting the use of more effective monetary measures to overcome stagnation and prepare for the next rainy day.

Eurozone unprepared

The international scenery is becoming every day more complex, unpredictable and perilous. Yet, Eurozone dragged down by Berlin remains motionless. Even with the available basic statistics, the ECB is not up to its mandate to maintain price stability and take action to bring inflation close to the statutory target of 2%. ECB’s extraordinary monetary measure of monthly asset purchases of €80 billion has so far proved not enough to winkle out inflation from the zero area.

On top of that, this program expires next March. If the currently applied policies continue unchanged, it’s rather impossible in the brief period of the next six months for inflation to rise close to 2%. Despite all that, the ECB strongly pressed by Germany, didn’t announce an increment of the monthly asset purchases nor did it prolong the period of the plan.

It’s always Germany

In other words, Eurozone may be caught without strong defensive walls in the event of an unexpected development in the global backdrop. Europe’s economy remains defenseless, just because Germany stupidly enough longs to safeguard its huge financial reserves at any cost. Alternatively, Berlin could have decided to use a small part of those reserves to fortify Eurozone’s collective financial markets and still keep the ownership of the resources employed.

The current arrangement in the euro area, with Germany accumulating reserves and the rest of the member states piling up debt, is explosive and has started steaming. The damage has already been made. Europe’s political background has cracked and its financial superstructure is full of risky assets.

What if?

What if the next North Korean 10 kiloton nuclear bomb is mounted on a strategic rocket to be fired? Would the euro area’s banking structures be able to stand the heat? Will the North be safe if the South crumbles? Is there enough interconnectedness to spread the disease?

The clock is ticking and Berlin has to answer those questions before the next ECB Governing Council convenes on 20th October. Otherwise it will be just too late.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

What people want – ignore at your peril

Global economy: ‘we must do everything possible’ to avoid global ‘fracture’ caused by US-China tensions, urges Guterres

Aid teams respond to escalating southwest Syria conflict: 750,000 civilians are at risk

What happens when you toss your water bottle in the trash?

The European Brain Drain: a truth or a myth?

Tax crimes: special committee calls for a European financial police force

Large parts of the world are growing more fragile. Here are 5 steps to reverse course

‘Emulate his example’ urges UN chief as world celebrates Nelson Mandela: a ‘global advocate for dignity and equality’

Why South Africa is on a path of economic renewal

Can agroforestry save India’s rivers and the farms that depend on them?

Action needed to tackle stalled social mobility

What brands get wrong about China – and how to put it right

Financial inclusion in India is soaring. Here’s what must happen next

Statement by President Tajani on US steel and aluminium duties

European Business Summit 2014 Launch Event: “Energising Industrial Growth”

European Parliament approves more transparency and efficiency in its internal rules

IMF – World Bank meetings: US – Germany clash instituted, anti-globalization prospects visualized

Terrorism ‘spreading and destabilizing’ entire regions, Guterres warns States, at key Kenya conference

Finland must focus on integrating migrant women and their children to boost their contribution to the economy and society

Gender Equality as a platform to improve Medicine

Medicine and mental health: relax, the doctor is a lifelong learner

5 ways to make your organization a great sustainability partner

Unity, regional cooperation and international support needed for Horn of Africa to develop sustainably

Anti-vaccers: does the empty can rattle the most?

UN police officer recognized for protecting vulnerable Somali women from abuse

Rohingya refugee shelters ‘washed away’ in Bangladesh monsoon rains: UN agency

CO2 can be a valuable raw material, not just a climate killer. Here’s how

There is a mental health crisis in entrepreneurship. Here’s how to tackle it

Egypt: The road to hell paved with western advices for democracy

China’s cities are rapidly becoming more competitive. Here’s why

A small group of world leaders are standing together against inequality

UN chief condemns air strike that hit school bus in northern Yemen, killing scores of children

Myanmar doing too little to ensure displaced Rohingya return: UN refugee agency chief

Here’s what you need to know about the UK’s booming second-hand economy

WEF Davos 2016 LIVE: “We need more Schengen but reinforce control!”, France’s Minister of Economy Emmanuel Macron emphasises from Davos

Amid ongoing fighting in northeast Syria, hundreds cross Iraqi border in search of safety

Why impoverishment and social exclusion grow in the EU; the affluent north also suffers

Newly displaced fleeing attacks in northeast Nigeria, top 2,000

We must stop turning a blind eye to the world’s health crises

The next generation is key for a European renaissance

World Population Day: ‘A matter of human rights’ says UN

Toni Morrison: 10 quotes you should know

Why practicing medicine privately at home is still a (difficult) option?

These will be the main cybersecurity trends in 2020

More than four in 10 women, live in fear of refusing partner’s sexual demands, new UN global study finds

Why the fight against nature loss should be a business priority

Four in 10 indigenous languages at risk of disappearing, warn UN human rights experts

Why are the Balkans’ political leaders meeting in Geneva this week?

The Dead Sea is drying up, and these two countries have a plan to save it

We lack a global framework for saving our environment. Here’s how we change that

No more lead in PVC to protect public health, say MEPs

Energy: new ambitious targets on renewables and energy efficiency

These patients are sharing their data to improve healthcare standards

5 technologies that will forever change global trade

The global economy isn’t working for women. Here’s what world leaders must do

Can self-charging batteries keep us connected for ever? A young scientist explains

WEF Davos 2016 LIVE: Banking moguls continue brandishing financial Armageddon to intimidate us all but in Davos they worry about the very distant future

Germany’s fiscal and financial self-destructive policies

270 million people are migrants, who send home a staggering $689 billion

3 ways Africa can improve the health of women and children

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s