David Shipley, Senior Editor at Bloomberg View, published a piece on Monday, highlighting that a tough job lies ahead for ECB, when it begins normalizing its monetary policy.
“The ECB's task will be a lot harder than the Fed's. Both central banks want to normalize monetary policy without spooking the bond market. In this, confidence that growth is sufficiently robust makes all the difference.”
“The ECB hopes that by the end of the year that confidence will be in place. For the euro zone as a whole, it may be -- but the bloc includes countries such as Portugal and Italy, struggling with high public debt and feeble recoveries. A monetary tightening, though appropriate for the euro zone as a whole, will be dangerous for its weakest members.”
“The end of quantitative easing also risks exposing flaws in the design of the euro zone that were so evident during the sovereign debt crisis. “
“Without fiscal transfers among members of the currency union, countries will have to persuade investors to continue funding their deficits.”
“To ensure a smooth exit, the ECB will therefore need help from governments. Politicians need to ensure that their countries can attract bond investors and won't have to test the ECB's safety net.”
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