Euro set to meet its maker in 2017 as ECB's cheap money runs dry

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There is no plan to cut back the ECB's asset-purchase programme just yet, but clearly there are already discussions going on in Frankfurt backrooms to kill QE at some stage.

Germany is at the front of the queue calling time on the ECB's unprecedented monetisation and the clamour for policy normalisation will intensify, not least because euro zone inflation is staging a comeback.

The ECB's favoured inflation indicator, the 5-year break-even forward rate, is already back up to 1.7 per cent after touching a 1.3 per cent low last year. This will be setting off ECB alarm bells, especially as the demand for credit has accelerated sharply in the last two years. Worries about asset bubbles forming will only harden Germany's resolve to stop the monetary overkill as soon as possible.

Once QE's taps are turned off, that's when the trouble starts. The ECB has extended asset purchases until December 2017, but tensions will surface long before then. Short term interest rates and longer-dated bond yields will start to rise in anticipation of the ECB's ‘taper tantrum'. Germany's economy may be better-placed to deal with higher borrowing costs, but the weaker eurozone economies will be left in the lurch.