Crumbling yields are primarily a warning signal that stagnation could be around the corner or a bet by investors that the ECB will soon be forced to launch quantitative easing (QE) and buy government bonds across the board. French Finance Minister fired a warning shot that France would no longer try to meet its deficit targets and in so doing inflict any further damage to its economy. He stated that “Growth is too weak in Europe and inflation is too low. We must therefore stop reinforcing the causes of this depression.”

The collapse of economic recovery in Europe leaves the ECB in a delicate position. Gov. Draghi offered no clues last week on when the ECB might finally resort to QE, insisting that it will wait to gauge the full effects of its negative deposit rate and the result of new loans to banks in September and December. This delays any likely QE until at least early 2015. European banks are nevertheless downsizing their lending (to customers) to meet their new capital ratios. Having said that the IMF said QE is a far more powerful instrument. Gabriel Stein, from Oxford Economics recently commented “The ECB will do as little as possible in the hope that something will come along to save them, and the euro will weaken. They are desperate not to do QE.”