One of Europe’s most influential economists has warned that the quantitative easing measures seen being unveiled by the European Central Bank (ECB) this week could create deep market volatility, akin to what was seen after the Swiss National Bank abandoned its currency peg.
“There was so much capital flight in anticipation of the QE to Switzerland, that the Swiss central bank was unable to stem the tide, and there will be more effects of that sort,” the President of Germany’s Ifo Institute for Economic Research, Hans-Werner Sinn, told CNBC on Monday.
This week, the ECB holds its two-day policy meeting and is widely seen unveiling a U.S. Federal Reserve-type government bond-purchasing program, known as quantitative easing or QE.
Sinn, a fierce critic of QE, said the launch of such a program would bring more market volatility, of the kind seen on Thursday after the Swiss National Bank abandoned its euro/Swiss franc floor.
“He (ECB President Mario Draghi) will do it, and what will the markets do, they will happy to be able to sell the government bonds, which they consider as partly toxic and they will have a lot of cash. What will they do – they will buy real estate, there could be a revival of the real estate market but they will primarily try to take it abroad. And they have already begun doing that – what you see in Switzerland,” Sinn told CNBC.
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