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“France it at war”, ECB QE expansion in question - Rabobank

FXStreet (Delhi) - Michael Every, Research Analyst at Rabobank, notes that in response to Friday’s attacks, French President Hollande is to invoke the EU’s ‘mutual defence clause’ (42.7 of the EU Treaty) for the first time.

Key Quotes

“This “provides that when a state is attacked, all member states must bring their solidarity to address the aggression.” Once triggered, commitments and cooperation “shall be consistent with commitments under the NATO, which, for those States which are members of it, remains the foundation of their collective defence and the forum for its implementation.” In short, whatever is to occur, it will be a French-led, pan-European effort.”

“It’s unclear if the decision not to invoke NATO’s Article 5 to the same effect was due to traditional French desire for independent/European action, or was based on concerns that the US may not be fully on the same page in terms of strategy. However, Mr. Hollande appears close to a rapprochement with Russia, with reports President Putin will work as a military ally against IS/Daesh.”

“France has invoked emergency powers to over-rule the EU’s budget deficit limits: “The security pact takes precedence over the stability pact. France is at war,” stated Mr. Hollande. Will that apply to other EU members for expenses related to supporting France in its coming struggle?”

“If so, will the ECB, set on expanding QE ahead, have a larger supply of government bonds to buy than it had previously expected? Indeed, what will the ECB see its role as being in the event that the Eurozone becomes involved in a large-scale military operation? (Though that remains an ‘if’ for now, of course.) These are untested waters, but the status quo seems to be shifting, as it tends to after extraordinary events.”

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