Forex Flash: ECB may be building a bridge to nowhere - Megan Greene

Share | (Barcelona) - In her latest article on what ECB outcome we may see today, Megan Greene, Director of European Economics at Roubini Global Economics, thinks the central bank is unlikely to cut rates, although seems rather optimistic that they "will be likely try unblock the transmission mechanism."

Megan quotes: "One way to do this is to reactivate the Securities Markets Programme ( SMP ). There is a chance the ECB might restart the SMP immediately to reduce Spanish and Italian sovereign bond yields. However, the ECB may announce that it will only reactivate the SMP if a country is subject to the conditionality required when a country has requested primary market bond purchases by the EFSF (and later the ESM)."

Megan agrees that "a dual-pronged approach to bond buying-with the EFSF buying in the primary markets and the ECB buying in the secondary markets-would be much more powerful than the ECB's SMP purchases have been in the past."

Megan thinks it is unlikely "the SMP will be unlimited in nature, with the EFSF and SMP bond purchases buying some time, but the bigger question is what policymakers do with that time" she says. At the end, she fears that the absence of political will to join forces thru a fiscal and banking union, will lead to the ECB "building a bridge to nowhere" she concludes.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

Referenced Stocks: SMP

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As of 4/22/2014, 04:07 PM