Greek and Italian finance ministers on Saturday expressed opposing views on the effectiveness of the European Central Bank’s (ECB) quantitative-easing program with Greece’s Yanis Varoufakis urging an alternative plan to stimulate Europe’s economy.
Varoufakis said ECB President Mario Draghi’s 1.1 trillion euro (US$1.2 trillion) QE would fail to drive investment-led growth, just as his Italian counterpart, Pier Carlo Padoan, hailed the program as already being successful through a declining euro. Padoan said a weaker euro is in line with the single currency area’s long-term economic outlook and will boost Italy’s recovery this year.
While Greece is involved in negotiations with its EU partners amid concerns the country could run out of cash at any moment, Varoufakis suggested an “alternative” stimulus plan that entails issuing bonds linked to investment projects financed by the European Investment Bank.
Both finance ministers spoke at the Ambrosetti economic symposium in Cernobbio, Italy, where an ECB Governing Council member, Bank of Italy Governor Ignazio Visco, also took the floor.
“QE could prove both unsustainable and incapable of boosting private credit growth and investment in productive activities,” Varoufakis said. “Imagine an alternative plan to QE where the EIB will take its marching orders to lead an investment-led recovery for Europe. I’d like to call that the Merkel plan.”
The ECB sovereign quantitative-easing plan, which started today, entails purchasing 60 billion euros per month until September next year, for a total of 1.1 trillion euros. ECB Executive Board member Benoit Coeure said on Thursday that national banks bought 9.8 billion euros in the plan’s first three days.
So far, the ECB’s sovereign-debt purchases have pushed bond yields in the euro area to record lows and reinforced the euro’s year-long decline. The single currency depreciated 25 percent against the US dollar in the last 12 months.
“The euro is now approaching a long-term level which is more consistent with fundamentals,” Padoan said in an interview with Bloomberg TV at the Ambrosetti Forum on Saturday. “A weaker euro, a euro more in line with fundamentals, of course helps exporting firms in Italy.”
Analyzing the ECB bond-buying program, Visco said that while QE was justified in the light of the “deflation risk” in the region, its effects on the exchange rate and on the bond market have overshot expectations in the first week of the plan.
“It is beyond doubt that the strength of the exchange rate decline is larger than we had expected,” he said.
QE will lead to 1 percentage-point growth in aggregate demand, Visco said, citing a study by Bank of Italy staff.
It will also improve “the context for structural reforms” by reducing macroeconomic uncertainty, he added.
Padoan said that the favorable economic conditions created by QE and by the weaker euro, as well as by a slump in oil prices, should not be seen as an “incentive” to slacken the pace of reform in debt-laden Italy. The country’s economy contracted last year and unemployment rose to record highs. The weaker euro coupled with a slump in oil prices will lead to expansion in the first quarter, he said.
“I would expect positive growth in 2015 but this as far as I can go in terms of numbers,” Padoan said.
The euro decline “generates additional growth momentum which has to be strengthened by further measures so that investment and jobs begin to get strengthened in the country,” he said.
The ECB’s bond buying is scheduled to last at least until September next year, or until inflation is back on track toward the ECB’s goal of just below 2 percent. Prices in the region fell 0.3 percent last month.
“One of the reasons why QE is showing to be so effective is exactly the announcement of an 18-months duration with possibly open ended further measures,” Padoan said. “This initial reaction in terms of interest rates falling, expectations for inflation beginning to rise and a weaker euro will be consolidated if the QE program will stay where it is.”
Nvidia Corp CEO Jensen Huang (黃仁勳) today announced that his company has selected "Beitou Shilin" in Taipei for its new Taiwan office, called Nvidia Constellation, putting an end to months of speculation. Industry sources have said that the tech giant has been eyeing the Beitou Shilin Science Park as the site of its new overseas headquarters, and speculated that the new headquarters would be built on two plots of land designated as "T17" and "T18," which span 3.89 hectares in the park. "I think it's time for us to reveal one of the largest products we've ever built," Huang said near the
China yesterday announced anti-dumping duties as high as 74.9 percent on imports of polyoxymethylene (POM) copolymers, a type of engineering plastic, from Taiwan, the US, the EU and Japan. The Chinese Ministry of Commerce’s findings conclude a probe launched in May last year, shortly after the US sharply increased tariffs on Chinese electric vehicles, computer chips and other imports. POM copolymers can partially replace metals such as copper and zinc, and have various applications, including in auto parts, electronics and medical equipment, the Chinese ministry has said. In January, it said initial investigations had determined that dumping was taking place, and implemented preliminary
Intel Corp yesterday reinforced its determination to strengthen its partnerships with Taiwan’s ecosystem partners including original-electronic-manufacturing (OEM) companies such as Hon Hai Precision Industry Co (鴻海精密) and chipmaker United Microelectronics Corp (UMC, 聯電). “Tonight marks a new beginning. We renew our new partnership with Taiwan ecosystem,” Intel new chief executive officer Tan Lip-bu (陳立武) said at a dinner with representatives from the company’s local partners, celebrating the 40th anniversary of the US chip giant’s presence in Taiwan. Tan took the reins at Intel six weeks ago aiming to reform the chipmaker and revive its past glory. This is the first time Tan
CUSTOMERS’ BURDEN: TSMC already has operations in the US and is a foundry, so any tariff increase would mostly affect US customers, not the company, the minister said Taiwanese manufacturers are “not afraid” of US tariffs, but are concerned about being affected more heavily than regional economic competitors Japan and South Korea, Minister of Economic Affairs J.W. Kuo (郭智輝) said. “Taiwan has many advantages that other countries do not have, the most notable of which is its semiconductor ecosystem,” Kuo said. The US “must rely on Taiwan” to boost its microchip manufacturing capacities, Kuo said in an interview ahead of his one-year anniversary in office tomorrow. Taiwan has submitted a position paper under Section 232 of the US Trade Expansion Act to explain the “complementary relationship” between Taiwan and the US
RSS