European politicians’ improvised measures and lack of long-term vision for solving the debt crisis is undermining consumer and investor confidence, Czech National Bank (ČNB) governor Miroslav Singer said in an interview published by Mladá fronta dnes on Wednesday. Nevertheless, Singer says if national governments implement debt reduction measures and the slowdown in economic growth isn’t too severe, the European economy should return to robust growth in 2013.
Should have left
“Economically the simplest [solution] would have been the departure of the weakest links, that’s to say Greece and Portugal, from the eurozone one and a half years ago. … The optics of the current costs of saving the eurozone would be considerably cheaper,” Singer said.
When asked about the recent purchases by the European Central Bank (ECB) of Spanish and Italian bonds, Singer points out that some economists have confused or wrongly confused or compared the measure with quantitative easing as implemented by the US ‘The ECB is close to a situation whereby it builds something with one hand, but destroys it with the other’Federal Reserve.
“The ECB is not defending against deflation by emitting money against bonds, but is target buying the debts of the most effected countries even if it has doubts about their solvency. It’s as if the Fed decided to select bonds issued by Detroit and California for purchase,” the central banker said.
The ECB purchase of Eurobonds from the eurozone’s economically weakest states combined with raising interest rates is a counter-productive policy, Singer warns.
“The ECB is close to a situation whereby it builds something with one hand, but destroys it with the other. To raise interest rates and at the same time emit money into the economy is a situation in which the European authorities could find themselves. But that would have all the disadvantages of inconsistent monetary policy because you create artificial subjects who have cheaper money whereas the others don’t,” he said.
Despite his warnings about economic uncertainty being created by short-term reactionary measures and a lack of vision, Singer says there are plenty of rich private individuals and companies in Europe with considerable spare cash and that if coherent, long-term economic policies with effective debt-reduction measures are introduced, confidence to spend and invest will return and the European economies should see a return to robust growth in 2013.
Czechs would cope better than most
“The slowdown of the Czech economy is expected, but it shouldn’t be as large as after the fall of Lehman Brothers [in 2008]. Worse than then though is that in Europe there’s a lack of willingness to say clearly how to resolve the situation with debts,” Singer warns.
In the event of a double-dip recession, Singer says the Czech economy, banking sector and also inhabitants will cope better than many. “Czechs will be even more cautious; they will recall that they managed to live on considerably less not that long ago and they won’t be prepared to get into debt. The [Czech] banking sector is stable and according to the worst case scenario of a fall like in 2008, Czech banks would require only several billion [crowns], which in proportion to the whole banking sector and size of our economy isn’t anything,” Singer said.