ECB’s bond-buying welcomed but it’s temporary assuage to help stabilise the crisis-hit economy

Lets see how this may impact Malaysia economy within few weeks as this may increase the market confidence, so to speak, but again is this really the cure?

ECB’s bond-buying welcomed but it’s temporary assuage to help stabilise the crisis-hit economy

PETALING JAYA: The fresh measures taken by the European Central Bank (ECB) would calm the nerves of global markets but positive sentiments will wear out as the underlying eurozone crisis bubbles beneath the temporary relief.
Local economists favoured ECB's move to buy bonds on eurozone countries that need assistance but called it a temporary assuagement to help stabilise the crisis-hit economy.
RAM Rating Services Sdn Bhd chief economist Dr Yeah Kim Leng said the ECB's unlimited bond purchase would immediately “bring some calm to the market, especially over the sovereign debt of the periperal countries in the eurozone”.

Yeah: ‘It will prevent global demand from further decelerating.’

“Although the crisis is yet to be resolved, at least this has provided relief to the highly indebted countries as it should help cap their borrowing cost from rising further,” he told StarBizWeek.
He added that the relief would help eurozone countries refocus their attention on restructuring, particularly in terms of growth generation and job creation. “It will prevent global demand from further decelerating.”
He believed that the bond-buying programme would restrain the soft patch in the global economy to within the third quarter of this year or, at most, the fourth quarter.
“We should be able to see growth stability in the last quarter (as) the attention has now shifted towards fiscal and monetary stimulus whether in the United States or the eurozone as well as large emerging countries like China to bolster growth,” he said.
Yeah opined that the measure taken was a major commitment that should help ensure the euro monetary zone kept intact.
As for the impact on Malaysia, he said sentiments would have been lifted among businesses.
Alliance Investment Bank Bhd chief economist Manokaran Mottain also saw the measure as a potential boost to Malaysia-eurozone trade as financial markets became more stable.
“Before a year ago, trade (between the two) had been improving fast but then the crisis slowed (it) down,” he said. “Our market share (for exports) to Europe has been improving and the ECB's announcement will provide some strength for them to continue importing our goods.”
However, he believed the buoyed sentiments would only be short term. “I would say one or two months but hopefully ECB will provide more news and information on the bond purchase.”
MIDF Research economist Anthony Dass said in a report that the bond-buying programme “will give some breathing space but not solve the deep structural problems of euro and its common currency”.
While he expects the bond-buying to reduce the pressure on Spain and Italy if they choose the assistance, “our concern is that a bond speculators' run on Italy and Spain, the third and fourth-largest economies in the eurozone, would overwhelm the European bailout funds”.
Dass said this would pose a fundamental crisis for the euro union, possibly sinking the currency, long before European politicians could put in place the necessary legal basis they had agreed to in principle for maintaining fiscal discipline and banking health in eurozone countries.
In another move to tackle the eurozone financial crisis, ECB announced on Thursday that it would buy bonds issued by heavily-indebted eurozone in open markets under strict conditions. The interesting twist here is that ECB would buy unlimited amount of bonds with maturity of up to three years.
To that move, local economists harboured favourable views, citing it as a sign the authorities are serious about keeping the eurozone together.