The ECB is contemplating new stimulus programs to try to instill some level of inflation into the Eurozone. Right now inflation is well below the target 2% and is potentially headed to zero or worse. While that is unlikely, it is possible which is what is motivating Draghi to start to even introduce the conversation about stimulus and QE which to date has been taboo. This should give investors in European assets some pause and should at the least create a series of projections that run the gamut of 2% inflation to possibly negative .25%. One also needs to consider what debt will be available at what rates when it comes time to exit.

While we have no way to intelligently know or even forecast what will be the situation Europe in three to five years, Given the Crimea invasion and the high chance Russia will instigate further encroachment into Ukraine and neighboring countries, nobody knows what could happen. While real war between NATO and Russia is extremely unlikely, one can never be certain. Much more likely is a battle of sanctions, gas supply constraints, restrictions on exports, suspended business dealings, and general uncertainty. While I have covered this before, it is the impact on banking and interest rates that is the current subject. Maybe due to the uncertainty the ECB lowers rates further to sustain what will be a weakened Eurozone economy. Maybe investors require a much higher risk premium depending on where this all goes over the rest of 2014. Maybe both happen.

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