Europe is still in crisis

Thought the financial picture across Europe was improving?

We have often said that, rather than resolving the European sovereign debt crisis, all political leaders there have done is to defer it until a later date.

Today we have seen the European Central Bank (ECB) cut the deposit rate a further 10 basis points to -0.20%.

Yes, that’s right, a negative interest rates on deposits; you must now pay your bank to look after your savings.

This is in response to the latest set of weak economic data and a fall in long term inflation expectations.

In short, the ECB are fighting a major battle against the scary prospect of deflation.

Commenting on this announcement, Fidelity’s Trevor Greetham, their Director of Asset Allocation, shared some interesting thoughts:

“There is no further room to cut rates so the focus is now squarely on the liquidity injections and asset purchase programmes already announced.

“President Draghi kept the door open to sovereign bond purchases and he continued to talk the euro down by drawing attention to other central banks heading towards tightening.

“Most interesting, he repeated his call for a more growth-friendly fiscal stance.

“As he put it, ‘each of us has to do our own jobs’ in order to get inflation back to its 2% target.

“What Europe really needs is a much easier fiscal stance in countries like Germany but that isn’t likely.

“All told, today’s policy changes aren’t enough to cause growth to come surging back in the euro area but things are looking brighter in the US where business confidence is strong and consumers are buying cars and houses once more.”

Photo credit