The ECB “long term refinancing operation” is two things.
Firstly, it is an outcome of agreement. It means Germany will stomach inflation. Why not? Germany will prosper even more under inflation. A few percentage points of inflation will lower the euro and make Germany an even greater powerhouse. What a sacrifice for Germany to make for the betterment of European unity.
Secondly, it is a method of stabilisation, stimulation and reflation of the euro, in a way no one cares will break the golden monetarist dream of fiscal prudence and balanced budgets. The ECB can “long term refinance” whenever it sees fit and if inflation hits, then that is hardly going to hinder European countries getting out of their debts.
So it can be explained that the euro will fall and fall, at least back to the lower bands seen at the beginning of the currency’s life. This is hardly a financial catastrophe.
If inflation in Europe can be kept between 5 and 7% it will likely be part of an inflationary trend that the US will also face, one the UK knows well already. Maybe inflation will hit double figures. If it does, then Europe will just pretend to be confused and blame it on rising prices not the falling value of European money.
No one will care much if the European economies are rebalanced slowly, slow change goes unnoticed.
This is good for assets as this reflation pushes up the nominal values of things or makes them appear to fall less, even though in economic terms there is a blood bath going on. While perhaps not adding real wealth, hard assets act as a hedge, against the ravages of stagflation.
Services like haircuts seem to get very expensive while those shiny toys such as smartphones seem to go up much less. Food and fuel prices rocket but house prices don’t rise at all. This makes inflation seem lower than it is. Most things you need go up a lot, many luxuries don’t go up by much. Real inflation is masked.
This is the hoped-for magic trick.