Lagarde pessimistic while Draghi and the ECB make another attempt to boost the Eurozone


Speaking at Georgetown University in Washington the managing director of the International Monetary Fund Christine Lagarde appeared pessimistic about the future, especially of countries in the Eurozone, pointing out that the economic rebound is even weaker than what the IMF had predicted six months ago, while countries risk getting stuck in a prolonged period of sluggish growth, since as she put it “the level of growth and jobs is simply not good enough.”  She also remarked that the recovery of the economy could also be derailed by geopolitical risks, making specific reference to the turmoil in the Ukraine, the Middle East and some parts of Asia, as well as the outbreak of the deadly Ebola virus in West Africa. She called on policymakers to do more to boost economic growth and create jobs, including reforming labor market policies, combating tax evasion and investing in infrastructure.

As part of its efforts to boost the economy the European Central Bank officially announced on Thursday its intention to buy rebundled packets of debt within the next few weeks, in order to shore up the flagging euro zone economy. The ECB’s  president also said that the bank would do more if needed. According to information ECB is planning to cast its net widely to include debt from Greece and Cyprus with a credit rating of junk on condition that such countries are under a formal international financial programme. The programme is intended to last for at least two years and the ECB hopes that it will spur a market for such credit and support lending to the small- and medium-sized firms that form the backbone of the euro zone economy.  As Mario Draghi pointed out “As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim.”

However, as already reported on market analysts and economists raise serious doubts that the purchases of asset backed securities (ABS) will help achieve this aim. For example, the Chief of the German Bundesbank Jens Weidmann has already voiced doubts about the ABS purchase plan and his predecessor, Axel Weber, had resigned over an earlier ECB bond-buying programme he was strongly opposed to. Indeed this matter seems very sensitive for Germany, with the head of the country’s influential IFO economic research institute, attacking the ECB’s new project and warning that “The ECB will finally be turned into a bail-out authority and a European bad bank.”