Brussels Bound by Way of Tokyo — Will Europe Succumb to Recession Before Interest Rates are Positive?

Bonjour de Bruxelles! Call what we refer to as Brussels the land of surprises for this initiate including the fact that the primary language spoken here is French. That aspect alone saved yours truly who studied the language for seven years and can only manage to say hello in Dutch because it’s “Hallo.”

What else can I tell you about this trek taken at the invitation of some European Parliamentarians who asked me to speak here on the perils of Quantitative Easing? For starters, Americans have zero concept of bureaucracy. I was almost relieved to find out that my hosts were associated with the one and only European Parliament given there are six other parliaments in Brussels. Seven parliaments, one town!

Not surprisingly, Brussels has a similar feel to that of Washington D.C. but much more relaxed given the bureaucrats have bureaucratic underlings. A tour of the Parliament building had the feeling of a vast city center filled with humanity, but strangely absent of energy. My hosts were the first to concede that not near enough gets done here, not enough meaningful decisions made, precisely because there are too many institutions, too many committees within those institutions and sub-committees within those committees.

This historic city a short 48-minute flight from Heathrow apparently has a climate that’s right up there with London or Seattle if you prefer. Luckily, I brought the sunshine with me which meant the streets were teeming with happy bureaucrats taking in their Vitamin D. Sadly, the local specialty, Moules Frites, was not on the menu – only eat the mussels in months that contain the letter ‘R.’ The fact that billiards merits prime time sports coverage did not assuage my culinary disappointment, but it did make me marvel at cultural differences. Whatever would they make of college football madness?

The people here are lovely. The sheer scope and depth of the bureaucracy, however, leaves little mystery as to the source of the anger that’s barely beneath the surface in so many European countries.

Without a doubt, this frustration extends to the inefficacy of Mario Draghi’s European Central Bank. Our housing is expensive. Theirs is dearer yet. Our government has spent with abandon thanks to interest rates being held at artificially low levels. Their governments have “enjoyed” even lower borrowing costs. Ergo, their countries have been even less compelled to pursue fiscal reforms leaving them that much less prepared for the next crisis. And while their economies are also looking quite late stage, their central bank is still knee deep in QE and getting more skittish about a full taper to say nothing of the radicalness of an actual increase in interest rates (to less negative territory, mind you).

The move north of 3% in our 10-year Treasury yield is doing nothing to calm the nerves. Europe’s bond market renders that of the U.S. a screaming bargain on a relative basis. Some serious strategists have begun to ask the very question I ask this week: Is normalization even conceivable for the ECB?

With that, the day is ending here so I will leave you with this week’s newsletter: Brussels Bound by Way of Tokyo: Will Europe Succumb to Recession Before Interest Rates are Positive?


Hoping you too can see lovely Bruxelles one day and as always, wishing you well,




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