A fire breaks out. Luckily the firemen arrive. But instead of watering down the burning house, they pour more and more water into a swimming pool which is already full.
In June 2016, the European Central Bank is launching yet another plan to try to revive the economy of the old continent. Since years of “printing money” through quantitative easing have not produced the desired results, here is the next step: to buy with this money not only government bonds but also private corporate bonds.
The Corporate Europe Observatory (CEO), the organization that has been studying and denouncing for years the impact of lobbies on the decisions of Europe, looked into which companies and sectors have benefited from such purchases. The research just published leaves no room for doubt: “The result is disturbing, unless you think that oil, luxury cars, champagne and gambling are the best sectors to invest public money.”
Ultimately, the intervention of the ECB is a crutch to support some of the largest corporations. Bonds are a form of financing, and their price follows the law of supply and demand: If there are many who want the bonds of a particular company, the latter will offer lower interest rates. If, however, almost nobody wants to buy them, the company will have to increase the interest rate to get the funds it needs. If the ECB intervenes by purchasing certain bonds. That entity therefore gains an advantage over competitors.