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Draghi's French dilemma

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The European Central Bank, after two years spent rewriting the central banker’s rule book doing “whatever it takes” to drive up inflation, is now in the tricky position of maybe having overshot. But while tapering QE is already on the cards, the biggest threat to the cost of debt in the eurozone for many years is closer than ever.

ECB president Mario Draghi has faced criticism since his asset purchase programme’s inception for inflating the price of assets without making an impact on the real economy.

But at last prices have begun to rise, and rise rather more sharply than expected. European prices are 2% up year on year, above the ECB’s target of close to but below 2%. To make matters worse, the inflation is unevenly distributed. Germany’s annual price increase was 2.2%.

The ECB’s decision to begin tapering its quantitative easing programme, cutting the purchase volume and shuffling figures to mitigate its impact, is therefore timely and necessary. But a French spanner may soon be tossed into the delicate workings of the European economy.

Paddy Power will give you 2/1 that Marine Le Pen, French Front National presidential candidate and arch-Eurosceptic, will win the coming election and there is plenty of time for her to gain ground in that race.

She may not be the favourite but 2/1 is rather short odds for an eventuality that could send the cost of debt in the eurozone into the ionosphere and threaten the very existence of the single currency.

Don’t bank on Draghi weaning the eurozone off the QE drugs just yet. He knows that Europe may need all the support it can get in the months to come.

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