Ways out of the crisis – the current monetary policy of the eurozone

What is the current situation with the eurozone crisis and which measures are being taken to find a way out of the crisis? ISM students from the Hamburg Campus and their lecturer and financial expert Prof. Dr. Friedrich W. Kersting received answers to these questions during a visit to the Deutsche Bundesbank. An interesting lecture by Dr. Jörn Eckhoff, Head of Assistants to the President, gave the students an insight into the monetary policy of the eurozone.

Mr Kersting, in his lecture Dr. Eckhoff referred to the right combination of monetary policy aid and assistance as a way out of the eurozone crisis. Which measures do you believe the ECB needs to take?

Instead of constantly taking new, dubious measures, it would probably be more sensible to wait and see the cumulative effect of the previous measures. Irrespective of this fact, the key to the solution of the “debt crisis” is not the monetary policy but the fiscal policy of the individual countries.

In March, the ECB released details about its bond-buying programme. The euro slipped to 1.05 against the U.S. dollar and the yields on 10-year German bonds fell further. Both helped to stimulate the stock markets. Is it worth investing in shares at the moment?

Nobody can say for sure whether the market will go up or down next week! Shares are, however, essential to achieve higher yields over the long term. Scientific studies have shown that shares are expected to yield an average return of seven percent per annum.

What do you think about a so-called “haircut” of Greek debt? Is that the solution to all the problems?

De facto, Greek debt has been written down – at least by public debtors. The debt payment period has been extended to the “Greek Calends” – the last instalment is due in 2057 – and the interest will only be calculated at a relatively insignificant level until that period in time. The only solution is therefore: to increase competitiveness, modernise the administration and – above all else – establish a fully functional and fair tax system.

Author: Christina Noll (ISM)