Courtesy of Mish.
Economist Nouriel Roubini is now actively proposing the ECB enter the global beggar-thy-neighbor currency wars as a solution to the eurozone crisis.
As reported by Yahoo! Fiance ,Roubini stated ECB must cut rates or risk crisis again
The bank would act eventually to avoid the recession getting worse, but risked doing “too little, too late,” Roubini said in an interview with CNN’s Nina dos Santos.
“They have to cut the policy rate, they have to stimulate the economy, they have to try to weaken the value of the euro,” said Roubini, who was credited with predicting the financial crisis of 2008.
“The euro should be 10, 20 or even 30% weaker to restore the competitiveness of the [eurozone] periphery,” Roubini said.
With all the world’s major central banks using “unconventional” methods to throw money at their economies, Roubini said the ECB could not sit on the sidelines while social tension mounts in weaker eurozone states. That tension is reflected in the Italian protest vote against austerity, and as resentment about the cost of bailouts rises in Germany and other northern states.
“If they are the only [central bank] holding out, then the damage economically and politically will be severe,” he said. “The risk is there will be a clash between austerity fatigue in the periphery of the eurozone and bailout fatigue in the core — the two could clash in a way that could put at risk again the entire eurozone system.”
Would Rate Cuts Help?
Roubini may have called the crisis (so did many others), but he sure does not know what to do about it.
Does it matter to any significant degree if interests rates are .5% or even .25% vs. .75%? I think not. More importantly, the notion that a euro 10, 20 or even 30% weaker would “restore the competitiveness of the periphery” is complete silliness.
The problem, as should be obvious, is structural. Rebalancing requires Spain, Italy, Greece (and now France) to become more competitive vs. Germany.
The opposite is happening as noted on February 6 in Germany Rebounds but … France Economic Implosion Accelerates; Record Decrease in Service Employment in Italy.
The very nature of the eurozone interest rate structure prevents rebalancing in a sensible manner….
