ECB may need to start QE, says Credit Suisse
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The European Central Bank may have to start a programme similar to quantitative easing through the Eurozone to avoid the single currency collapsing, according to Credit Suisse.
Markets have fallen throughout the world today as investors continue to fear a full-blown sovereign debt crisis throughout Europe even after Greece’s €110bn rescue package that was announced by the ECB and the International Monetary Fund this week. The Euro has also dropped to below $1.30, a year low.
Credit Suisse equity research analyst Andrew Garthwaite says the ECB must now begin to consider “the end game” which may mean buying up troubled European government debt akin to the gilt buy-up recently implemented by the Bank of England.
Garthwaite says: “We believe that central bankers and politicians in Europe will end up doing whatever is necessary to protect the monetary union. This will not only require the EU and IMF to come out with very substantial support packages – but, more importantly, the ECB may actually end up with a de facto expansion of its balance sheet and embarking on some form of quantitative easing.”
Credit Suisse says on the evidence of the ECB accepting Greek’s junk status bonds, the ECB may be ready to buy up bonds of troubled nations. It says this may mean the ECB instructs central banks to buy up their own debts.
Garthwaite says: “We believe that the ECB has no other option. European banks hold, we believe, about £50bn of Greek, £30bn of Portuguese and £56bn of Spanish government debt, with around 80 per cent of total Greek government debt being held by foreigners.”
The BBC reports that three people have been killed in riots in Athens today. Greek people are taking part in a national general strike in opposition to the Greek government’s austerity package, which will see it cut €30bn to reduce its budget deficit.
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