GTC Advisors – Mario Draghi Defends the ECB's Continued Stimulus Package

GENEVA - June 29, 2017 - PRLog -- Whilst the Federal Reserve looks to claw back some of its QE with strategic implementation of rate increases, the ECB and its head, Mario Draghi looks set to continue the huge debt buying program which has been running since March, 2015.

Based on the latest comments from the head of the European Central Bank Mario Draghi, don't expect Eurozone interest rates to be going up any time soon.

On Wednesday he said it was still too early to declare victory in the ECB's efforts to boost the region's economic recovery and push up inflation from super low levels.

Draghi told a session of the Lower House of the Dutch Parliament that the recovery "has evolved from being fragile and uneven into a firming, broad-based upswing", but he is still worried about job creation and wage growth.

Richer Eurozone countries – such as Germany and the Netherlands – has said they want the ECB to reduce its stimulus measures that are pumping billions into the region's economy. They would also like it to start putting up the cost of borrowing.

At Wednesday's session, Draghi was given a hard time by several Dutch lawmakers.

One of them, Tony van Dijck, complained about continued low interest rates and accused Draghi of depriving people of returns on their savings, saying "You're not a hero" in the Netherlands.

In response Draghi said the stimulus had benefited the Eurozone economy and ordinary people by helping boost employment.

The ECB president insisted the benefits of the ECB's monetary stimulus were outweighing its side effects, but he did acknowledge rising property prices and high household debt in some countries, including the Netherlands.

"We do not currently see compelling evidence of overstretched asset valuations at the euro area level, but we do see that real estate dynamics or high household debt levels in some countries signal the risk of increasing imbalances," Draghi said.

"Such risks also exist in the Netherlands." He said.

It is poignant that the wealthier countries in the EU are looking for the ECB to pull back from its QE policy whilst several of the less well-off members are desperately looking to shore up their finances. Currently, Italy is looking to bailout several banks and Greece is staring at the possibility that its latest round of bailout funds from the ECB, EC and IMF may be its last, if it even gets the full allocation previously agreed.

With uncertainty abound in the Eurozone and Brexit negotiations getting up to speed, the EU is in potentially dire straits. Recent elections in both France and the Netherlands have helped cool many citizens concerns that the 28-member state was falling apart at the seams at the hands of nationalists, something quite a few economists had predicted.

What we expect now is cooler heads to prevail in the second half of 2017. Brexit will play a major part in the Eurozone and with business sentiment increasing in the region there is a positive feel on the continent. What is left to be seen is whether the ECB will emulate the US and start to increase rates, slowly at first, in an effort to ease the QE which has been billions of Euros being spent each month.

GTC Advisors still expects there to be many opportunities within the EU for our clients, however, we do believe the equity markets in the US have shown that although they are susceptible to Euro colds, they have proved to have a strong immune system in 2017, even with President Trump and his escapades.

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