UBS AG Chairman and former European Central Bank Governing Council member Axel Weber said the euro region’s festering debt crisis will “continue to linger” as the ECB fails to ease market disquiet and volatility.
“While many expect that the ECB’s strong action would bring stability to financial markets, the risk is that the pattern of short-term rallies and long-term uncertainty will stay with us for some future,” Weber said today at an investment conference in Moscow organized by VTB Capital.
The program of unlimited bond purchases unveiled last month by ECB President Mario Draghi has sought to stamp out the crisis by limiting government borrowing costs and giving debt-ridden nations the chance to fix their economies and preserve the euro. Weber, who during his tenure at the ECB opposed the central bank’s previous bond-buying plan, predicted the monetary union will overcome the crisis even as there won’t be a “quick fix.”
“The underlying fundamental perspective is not great at the moment,” Weber said. “Austerity programs which are badly needed to restore market confidence and create fiscal room to maneuver will take a toll on the economy. So this will be a rough patch that Europe is going through, but it will get better.”
Economic confidence in the region unexpectedly fell in September after the euro-area economy contracted 0.2 percent in the second quarter, and indicators have since shown signs of a deepening slump. Unemployment in the economy of the 17 nations using the euro reached the highest on record and factory output contracted for a 14th straight month in September.
“The Europeans just need longer to work it out,” Weber said. “It’s very complex: this is a ship in storm, it has 17 captains.”
Weber, who is also a former president of Germany’s Bundesbank, said “the known flaws of the European construction cannot be reversed,” nor do they merit “infinite” discussion.
“We are where we are,” he said. “There’s no argument that anything could be changed now. What needs to be done is courageous political decisions need to be taken, forceful reforms need to be enacted, and the construction that we have needs to be made to work.”