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ECB's QE Won't Help Europe – Nouriel Roubini

By Sarah Benali Kitco News
Wednesday January 21, 2014 2:17 PM


(Kitco News) - Market participants wait impatiently for Thursday’s ECB meeting despite leaked European Central Bank documents suggesting a €50 billion per month bond-purchase program to be announced.

However, one famed economist said he does not think quantitative easing will be enough to save the region’s economy.

 “QE alone is not sufficient. Mario Draghi even said that the euro zone has a problem; we have a lack of aggregate demand,” Nouriel Roubini told Lucy Marcus, CEO of Marcus Venture Consulting, in a Reuters interview at the World Economic Forum in Davos on Wednesday.

According to Roubini, the aggregate demand issue can be resolved with monetary and credit easing, but also with “temporary fiscal stimulus,” which, he said, Germany is not willing to allow the ECB to execute.

“Unfortunately, Germany is against that fiscal stimulus for the euro zone and for Germany, and therefore the impact of QE by the ECB is not going to be as strong as it would be with the right fiscal policy,” he added.

According to media reports, leaked documents from the ECB on Wednesday suggest that Mario Draghi is looking to introduce a €50 billion-a-month stimulus package through to 2016, totaling 1.1 trillion euros ($1.3 trillion), into the European economy in order to fight off deflation and restore the region’s economy.

Roubini also talked about the Swiss National Bank’s recent surprise announcement to unpeg the franc to the euro, saying that the central bank, by introducing the peg initially, was actually doing its own form of QE through “unlimited, unsterilized foreign exchange intervention.” He added that the SNB “lost that battle.”

“People are questioning whether the central banks are able to avoid deflation and jump start economic growth,” he added.

Looking to the U.S. economy, Roubini said he still expects the U.S. Federal Reserve to hike interest rates in the third quarter of this year, instead of June as some analysts have forecasted.

Growth is improving, labor market is improving but because of the oil price shock now prices are starting to fall,” he said. “Even the U.S. is going to be near deflation… so how can the fed start hiking rates say in June, as opposed to September, when inflation is falling quite sharply.”

Roubini was also quite bearish on the second-largest economy in the world, China, saying that he expects growth by next year to be below 6% in the country.

“My main concern is that China is not doing the reforms that are required to move from fixed investment to consumption fast enough,” he added.

China renewed stimulus efforts late last year and although it helped boost GDP numbers to 7.4% for 2014, it was not enough to prevent the country from recording its weakest annual growth rate in the last 24 years.

By Sarah Benali of Kitco News sbenali@kitco.com
Follow me on Twitter @SdBenali



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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