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Investors hope they don't get another disappointment from the European Central Bank (ECB) meeting today (Thursday) like the one the U.S. Federal Reserve delivered yesterday.
After the Fed said that the economy has slowed and unemployment remains elevated, but then took no action, investors turned to ECB President Mario Draghi to rescue the euro.
Yet, many economists think the Eurozone cannot be saved.
The Eurozone debt crisis has reached a point where further bailouts will only highlight their inadequacy to solve the problem. But, the countries involved in the crisis have come to the point where they expect further stimulus and will panic if none is given.
We have already seen riots in Spain where the unemployment rate is a Eurozone high of 24.8%, and it's not the only country facing serious unemployment issues. Behind Spain's depressingly high rate is Greece at 22.6%, Portugal at 15.4%, Ireland at 14.8% and France and Italy both with a 10.2% unemployment rate.
The unemployment rate for the Eurozone reached an all-time high of 11.2% in June. The latest numbers show unemployment increased by 123,000 to a total of 17.8 million. That is 40% higher than the 12.7 million unemployed in the U.S. as of the June jobs report.
The youth unemployment rate in Spain and Greece has topped 50% and this adds even more pressure for ECB president Mario Draghi to back up his emphatic statement that "the ECB is ready to do what it takes to preserve the euro. And believe me, it will be enough."
Unfortunately it will not be enough and if anything it will just make matters worse when Greece eventually exits the euro and it begins to collapse.
Eurozone Debt Crisis Has No Easy Fix
Today's ECB meeting will do little to fix the Eurozone debt crisis, but here are five analysts' predictions of what could take place.
Money Morning's Global Investment Strategist Martin Hutchinson just warned of the dangers of further stimulus but nonetheless expects the ECB to act, if not today, very soon.
"Each attempt to solve the problem provides respite for only a few weeks or even days. The more dangerous possibility, becoming more likely with Draghi's recent statements and the support for it from national leaders, is that the EU will devote yet more money from the solvent parts of Europe to prop up the losers," said Hutchinson. "That won't prevent the eventual crash, but will make it much worse when it finally arrives. And arrive it will. At some point, when you're in a big hole, you simply have to stop digging."
Morgan Stanley (NYSE: MS) does not expect any action from the ECB but said that Draghi could point toward September rate cuts. The bank does not expect a reactivation of government bond purchases through the Securities Marketing Program (SMP) and thinks if the ECB does intervene it will be through the Eurozone's temporary bailout fund, the European Financial Stability Facility.
Goldman Sachs Group Inc. (NYSE: GS) does not expect any changes to policy rates after the ECB cut its deposit rate to 0% at its last meeting while keeping its refinancing rate at 0.75%. The company does expect a new stimulus measure to be offered given the nature of Draghi's earlier comments.
Deutsche Bank AG (NYSE: DB) sees the possibility for more unconventional measures such as the SMP or something similar to be introduced. Deutsche does not see any policy rate changes today but expects another 25-basis-point cut to the refinancing rate at September's meeting.
ING Groep N.V. (NYSE ADR: ING) is in the same camp as Goldman expecting the ECB to do something after Draghi's statements. The bank warned that any decision could come with a risk of political complacency and moral hazard due to the previous actions taken.
"Up to now the ECB has been on a balancing act between providing the bare minimum in terms of emergency aid to calm markets, while at the same time keeping maximum pressure on euro-zone politicians to continue with austerity and reforms," ING wrote in a report.
ING thinks we might see some more of SMP, a bit more of tailor-made credit stimulus, long-term refinancing operation (LTRO) and possibly a rate cut.
While there is no clear consensus on what will happen, the majority of economists expect markets in Europe and the U.S. to act negatively if no action is taken.
Related Articles and News:
- Money Morning:
Try as He Might, Mario Draghi Cannot Save the Euro
- Money Morning:
France May be the Domino that Causes the Euro to Collapse
- Money Morning:
Eurozone Debt Crisis Won't Be Fixed by "Bailout Lite"
- Bloomberg News:
Euro-Area Unemployment Rate Reaches Record 11.2%: Economy
- The Wall Street Journal:
Roundup: Analyst Predictions for the ECM Meeting