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The ECB is freaking out and ran out of ideas to stimulate the economic activity in the Eurozone as the inflation rate is reaching alarmingly low levels. ECB President Draghi's main fear is that because the inflation is expected to be low, it will remain low. It doesn't happen very often that a president of a central bank is panicking because of a self-fulfilling prophecy, but Draghi surely seems to be a bit lost.

Whereas everybody would have been crying wolf a few years ago if anyone would have dared to launch a buyback program of sovereign bonds, the idea is gaining more and more ground. Before the Global Financial Crisis in 2008 the ECB's only mission statement was to keep the inflation at a steady rate of close to, but below 2% which was thought to be the ‘perfect' inflation rate on a macro-economic level as it would ensure some sort of sustainable growth.

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As it started to look like the annual inflation rate in the Eurozone was very far off the 2% mark, Draghi promised to dust off his 1000 billion euro bazooka, but this didn't seem to help to create a self-fulfilling prophecy on his own. It looks like that bazooka will indeed have to be loaded now and the big question is what Draghi will do with his available funds. It's starting to look inevitable to effectively start buying sovereign bonds and that could make the ECB one of the member country's main financiers. Of course this also increases the moral hazard risk as weaker countries might consider this to be a first line of credit instead of seeing the ECB as a ‘lender of last resort' which it intended to be.

This also brings up the topic of Eurobonds again, and we will discuss this matter in another column. This could solve a part of the problem, but then again you risk to fuel the moral hazard problem as the fate of several countries would be intertwined and there would be no incentive at all to even try to be best of the class if you can move your sovereign risk onto a ‘pool' of countries.