(MENAFN- Arab Times) The situation in the Euro zone is about to stabilize with the decision of the European Central Bank (ECB) to support high-debt countries with an expansionary policy, including buying bonds, says Dr Ulrich Kater, Chief Economist at DebaBank, German based bank, managing 168 billion Euro. The economist was speaking at a media roundtable organized at JW Marriot Monday to discuss the situation in the Euro zone and the prospects for the future. At a conference for bank directors and investors held before the roundtable, Dr Kater emphasized that Europe will continue to exist, Greece included. "There will nevertheless be a North-South device within Europe, with the North continuing to making gains and the South struggling against losses. But overall, Europe continues to be an attractive investment for institutional investors worldwide. The largest of these come from the Gulf states."
Oliver Behrens, DekaBank's acting Chairman of the Board, noted that Germany provides a force for stability in the turbulent times, which will make the European equity market attractive to investors. Behrens argued that role of Germany warrants the enormous confidence in the European economy.
Taking questions from the media, Dr Kater said that the policies of the ECB to support high debt countries will bring some stress relief to Europe. He conceded that the problems are not fully over, "but the ECB's decision will give some time for the next 2 or 3 years for reforms."
Keen
Talking about Germany, Kater said that it is keen to hold Greece within the EU. However, Germany will have to do some sacrifices to provide debt relief, which is unavoidable.
From a German perspective, it's important to save the Euro currency, because Germany is gaining a lot from it. Kater was quick to add that this idea is difficult to sell to the German public.
On the subject of ECB's monetary policy, Behrens highlighted the new character of the policy starting from the beginning of Sep, 2012, with ECB initiating a new bond-buying policy, "which is a departure from the traditional policies. It is a more pragmatic approach."
Behrens recalled how Demark was a premium currency rooted in purist monetary policy. He added it was compromised for Euro, which had other advantages. He stressed that the balance of interests of all participating nations is the key, "though difficult."
To a question on the reaction of German taxpayers to the new policy of supporting others' debts, Kater replied the stress relief measures will not come at the cost of German taxpayers.
Certain European countries have accumulated debt, and it is impossible for Germany to bail them all out. Therefore, other debt relief strategies have to be looked at like making debt cuts as in Greece. However, for a big debtor like Spain this would be impractical.
Kater said that keeping the interest rates down below inflation rates is a way to ease debt burdens. This is what the US is doing, and it's working. We can expect the interest rates to be very low in the next 10 years.
Behrens added to Kater's points that low interest rates will help stimulate the economy, though for the banks low interest rates are not very encouraging. In Germany investors are moving into property and there's a need to develop more equity culture.
Banks have become more cautious in their lending practices, and unsecured lending hasn't seen any revival yet. Banks lend money only if there are additional collaterals.
The experts also touched upon the politics of the crisis, spotlighting how politicians are playing by the ear in their support for the new economic policies. Germany is going for elections next year. German economy is doing well and people are happy. There's been a 3 to 5 percent pay raise in the recent months.
The radicals in the left and the extreme right are not getting much support for their opposition to the new policies. Netherlands which went to the polls last week gave the radicals a drubbing, showing the general mood to be in favor of the current reforms.
Another issue touched upon at the roundtable involved regulations. Europe still lacks regulations and an authority to apply the rules equally. There are 6000 banks in the Euro land, and all of it can't be brought under one authority. So as a first step, the heavyweights will have to be short listed to be brought under a common authority. And secondly, banks will have to be helped with public money using the European Stability Mechanism (ESM).
The greatest challenge, according to the experts, is bringing down the debt levels. Learning from the crisis, countries will have to move away from accumulating huge debts, and debt aggregates should go parallel to the real GDP.
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