WES Presents: Antonio Garcia Pascual
Posted on the 25th November 2016 by Ieva
Antonio Garcia Pascual, Chief Europe economist at Barclays Bank, was welcomed onto the podium for the first WES Presents talk of the year in a room packed to the brim with an eager audience of students and staff alike.
After giving a brief introduction of himself, he went on to animatedly explain the condition of various European economies during the Sovereign Debt Crisis in 2010. At that time, the Euro area was on the brink of breaking and external borrowings became imperative but difficult to obtain as well. Europe needed accommodative monetary policy to ride in on a white horse and rescue it from the sovereign default. This hope was not far from the reality and came in the form of President Draghi who expressed that “the ECB is ready to do whatever it takes to preserve the Euro”. He promised to flood markets with liquidity, buy large scale government bonds, and engineer new policies to stabilise the Eurozone again.
Pascual further explained the reasoning behind central banks’ engagement in quantitative easing and decision to push the interest rates to the zero-lower-bound or below. To illustrate this, he showed that Spain and Germany were operating on negative interest rates for medium term bonds. Despite the policies to pump money into the economy, many parts of Europe failed to emerge out of low growth and low inflation levels, at approximately 0.8%. Expectations for inflation rates for the next five years remained lower than it had been in the past.
While recovery rates were lagging in the UK and the USA in 2016, the Euro area has just returned to the GDP level it enjoyed in 2008. According to Pascual, its recovery period was slowed down massively by the periphery, including Italy, Portugal, and Spain. He took off Greece from his story because it displayed the worst growth, which could not even fit within the boundaries of the charts. He added that as long as an interest rate corridor exists, it is easy to manipulate it to receive desirable economic outcomes, but once the zero lower bound is hit, policies need to be much more creative. This includes portfolio rebalancing and credit easing, among a range of other tools that could be used.
While inflation in the Euro area was less than 0.5%, the original target had been 2%. Therefore, Pascual posed the inevitable question: had the ECB failed even after all those extraordinary policy decisions? He answered by explaining that without Quantitative Easing to prop up inflation and growth, both indicators would have been even lower than they are now. Finally, Pascual raised an important point that because the ECB bears the brunt of the problem, it removes the incentive for governments to work towards fiscal reforms themselves.
After the enthralling talk, a QA session ensued with many students engaging actively and asking relevant questions, regarding the discussion as well as the current economic world. The Trade Pacific Partnership was discussed, along with inventive solutions to sovereign default, namely the helicopter money. The last question fittingly ended on Brexit, in response to which Pascual mentioned that from an economic perspective, Brexit could make sense. However, he stated that the extent of the economic damage caused by Brexit will largely depend on the upcoming negotiations between the UK and the EU.
Written by Anisha Bhavnani
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