QE to fuel ‘unsustainable’ equity rally

The European Central Bank’s bond purchases will create an ‘unsustainable’ stock market rally and are unlikely to boost euro zone investments, according to Greek Finance Minister Yanis Varoufakis.

The ECB began a program of buying sovereign bonds, or quantitative easing, on Monday to support growth and lift euro zone inflation from below zero up towards its target of just under two percent.

Bond yields in the currency bloc have collapsed, but record low-interest rates so far have not spurred investments that would support growth in recession-hit countries like Italy or Spain.

Varoufakis:

“QE is all around us and optimism is in the air. At the risk to sound the party pooper, I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments.

“The result of this is going to be an equity run boost that will prove unsustainable.”

Varoufakis reiterated that the new Greek government was ready to time its promised anti-austerity measures in a way that helped negotiations with European Union partners over financial aid’s disbursement.

Varoufakis:

“We never said we’re going to revenge on any promises, we said that our promises concern a four-year parliamentary term.”

“They will be spaced out in an optimal way, in a way that is in tune with our bargaining stance in Europe and also with the fiscal position of the Greek state.”

Athens needs to agree with creditors on a revised package of measures to access funds pledged to it from the euro zone and the International Monetary Fund under a four-month extension of its bailout program.

Varoufakis also expressed confidence that an agreement would be reached by April 20th.

Source: Reuters

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