Could Europe go the way of the Federal Reserve and unleash a new torrent of euro-denominated cash to stave off a new recession? Or are they bluffing?
Speaking to the European parliament, European Central Bank Chief (ECB) Jean-Claude Trichet seemed to hint at a return to so-called quantitative easing in the eurozone.
A new round to bank bond purchases — strongly criticized by other European leaders, including Bundesbank President Axel Weber — could help stem the growing crisis in major member countries such as Spain.
Or, Trichet might simply be jawboning, using the bully pulpit of the ECB to suggest new bond purchases are likely, thus forcing markets into line.
Trichet believes the traders have it all wrong, badly overestimating the risk of sovereign default by discounting political resolve.
“Pundits are under-estimating the determination of governments,” he told the parliament, according to a Financial Times report, a variation on the warning often heard in U.S. markets that one should “not fight the Fed” since it can print money without limits.
“I don’t think that financial stability in the eurozone, given what I know, could really be called into question,” Trichet continued.
A combination of Trichet’s remarks, strong Chinese manufacturing, and a surprising climb in U.S. employment figures supported stocks around the world.
“The manufacturing numbers in China came out stronger than expected, things are actually not as bad as people believe it to be,” Choo Swee Kee, chief investment officer of TA Investment Management Bhd. in Kuala Lumpur, told Bloomberg News.
“The U.S. is also coming along fine.”
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