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Opinion
Gary Shilling

Might Be Time to Short the Euro

To fight deflation, the ECB could stimulate the euro-area economy by purchasing securities backed by mortgages, small-business loans, corporate debt and bank loans, as well as government debt. 
Who's ready for some bond-buying in Europe? Photographer: Ralph Orlowski/Bloomberg
Who's ready for some bond-buying in Europe? Photographer: Ralph Orlowski/Bloomberg

In parts 1 and 2 of this series, I explored looming deflation in Europe and why central banks fret over it. The European Central Bank is gearing up to depress the euro, which it blames for much of the deflation threat in the euro area, or at least the portion it can influence.

The ECB reduced its overnight reference interest rate from 0.5 percent to 0.25 percent in November. If it cut the rate again, the ECB would join the Federal Reserve and the Bank of Japan with rates of essentially zero. With all the central-bank-created liquidity sloshing around the world, these rates are largely symbolic. Yet another ECB reduction could make foreign investment in the euro area less attractive, to the detriment of the euro.