by Shai Ahmed
The global economy can only return to growth once looser monetary policy is employed by both Europe and the United States, including more quantitative easing, said Bob Parker, senior advisor at Credit Suisse.
“Growth seems to be a major problem not just in Europe but also in the States where it appears to have stalled. In the last two months the real worry has been the slowdown of the German economy,” he told CNBC, “I think to kick start growth you are going to see some measures this weekend such as deficit targets being delayed by one year and infrastructure projects.”
European Union heads of state meet in Brussels to discuss such measures to tackle the euro zone debt crisis. The European Commission has already granted crisis-hit Spain an extension to a deadline to reach tough deficit targets.
Some EU member states have indicated they are also prepared to give Greece some leeway in achieving deficit targets.
“It probably means in Europe, an interest rate cut by the (European Central Bank) and eventually (a third round of quantitative easing) by the Fed. One of the key themes for July and August will be another round of monetary easing,” he added.
Two previous LTROs launched in December and February saw the ECB lending money at a very low interest rate to euro zone banks.
The central bank hoped that banks would use the injection of cheap money to buy higher-yielding assets and make profits, or to lend more money to businesses and consumers — which could help the real economy return to growth as well as potentially yielding returns.
He added that most policymakers would prefer a higher rate of inflation without getting out of control with “3 percent as a desirable objective.”
Marc Ostwald, strategist at Monument Securities, agreed that most countries would like to inflate their way out of the current stagnant growth position.
“They’d all like to try and inflate their way out unfortunately the accumulated liabilities that are there are now so large that the inflating your way option will just get rid of a bit,” Ostwald said.