“Citi’s chief economist Willem Buiter gave a tempered assessment of the effects of the European Central Bank’s two three-year LTROs when he appeared on Bloomberg TV this morning (via @lindayueh).
While he emphasized that the ECB’s liquidity actions were the best course of action to address a credit crunch in the banking system, he argued that Europe will still have to face many hurdles—and indeed, more “near-panics”—in the years ahead:
It has bought time. Without actions of this nature there could have been catastrophe. Catastrophe has been avoided, and the collective sigh of relief can still be heard from here to Frankfurt…
Undoubtedly I think before this crisis is over, there will be other episodes of near-panic and paralysis in the markets which will call for the big battalions of the ECB, or the big bazooka to use a metaphor, to be fired. Only the ECB has the big pockets to keep governments funded and the banks funded when fear strikes, and it will strike again. I mean, other sovereigns will restructure in the euro area in the years to come and there’s no doubt that other holes will be discovered in banks’ balance sheets that will have to be filled in a hurry.
As for the U.S., he predicted that the Federal Reserve will embark on more quantitative easing this year if unemployment or economic activity begins to disappoint as the year progresses. However, he argued that this time the Fed should make QE “credit easing” by expanding the kinds of assets it purchases….”
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