Economics
ECB Faces the Classic Emerging-Market Dilemma
- ECB must deal with both weak economy and capital-outflow risks
- Bank will be forced to keep policy tight despite recession
This article is for subscribers only.
The ECB will be pressured to maintain its hawkish stance -- even when data deteriorate and a Europe-wide recession sets in -- as the risk of capital outflows mounts
The ECB is facing a dilemma more commonly the bane of EM central banks. But Europe cannot afford to be complacent. Capital outflow is a considerable risk when your currency is severely compromised by an acute energy dependence, as the euro is today.