Page 115 - Ray Dalio - Principles

relationships as I saw them, so that together we could assess
whether the conclusions made sense.

A major impediment to this action was that there is no
single bond market for the entire Eurozone, and the ECB, like

most central banks, isn’t supposed to favor one area/country
over another. Given those conditions, I shared my theory for
how the ECB could do quantitative easing without breaking its
rules by buying bonds proportionately across every member
country, even though Germany didn’t need or want the easing
that such purchases would bring them. (The German economy

was doing relatively well and inflation fears were beginning to
emerge there.)

In the course of those eighteen months, I met with several
top European economic policymakers, perhaps most
importantly German finance minister Wolfgang Schäuble,
whom I judged to be exceptionally thoughtful and selfless. I
also saw how politics within Germany and Europe worked. 9

When push came to shove, the ECB would have to do what
was best for Europe, which was to print the money and buy the
bonds in the way I had suggested. Doing that was consistent
with the ECB’s mandate, and the Southern European debtor
countries had the votes to allow it to do that, so I figured that it
would be the Germans who would get overruled and face the
decision to leave the Eurozone, which they would ultimately

not do because their leaders had a strong commitment to the
Eurozone with Germany as part of it.

Draghi finally announced the move in January 2015. It had
a great effect and created a precedent that would allow more
quantitative easings in the future if they were needed. The
market reaction was very positive. On the day of Draghi’s
announcement European equities were up a percent and a half,

government bond yields fell across the major European
economies, and the euro fell 2 percent against the dollar
(which helped stimulate the economy). These moves
continued over the following months, stimulating European
economies, supporting a pickup in growth, and reversing the

decline in inflation.