Tags: Roubini | Europe | Cut | Interest | Rates | Zero

Roubini: Europe Should Cut Interest Rates to Zero

Thursday, 10 Jun 2010 05:04 PM

The European Central Bank should slash its benchmark interest rate to zero and expand government bond purchases to offset the recessionary effects of euro-area austerity measures, says New York University economist Nouriel Roubini.

“That has to be the policy mix: tight fiscal, but much more easy money, looser monetary policy, more quantitative easing and also a weakening of the euro,” says Roubini, who predicted the financial crisis.

“Going to zero alone is not going to be enough, it’s 100 basis points,” says Roubini. (One basis point is equivalent to 0.01%, or one-hundredth of a percentage point.)

“They need to go to zero, they need to do more quantitative easing, they need to support dysfunctional markets, they need to signal that they are actually not uncomfortable with a weaker euro as long as that is a gradual and orderly process,” he told Bloomberg Business Week.

Roubini says he can see the euro falling to parity against the U.S. dollar.

Markets are very uncertain about the size of European Central Bank’s intervention, Roubini observes.

“Overall better communication by the ECB, better transparency about the wide range of things they do or don’t do, is going to be important.”

Roubini also said that a 750 billion euro ($909.49 billion) financial backstop adopted by the EU to protect euro region countries if their bonds come under attack may not be enough, especially if Italy needs aid.

Italy’s Unicredit is especially exposed in Eastern Europe after taking over a German and an Austrian bank, speroforum.com reports.

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The European Central Bank should slash its benchmark interest rate to zero and expand government bond purchases to offset the recessionary effects of euro-area austerity measures, says New York University economist Nouriel Roubini. That has to be the policy mix: tight...
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2010-04-10
 

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