EU Policies

We Need A United Digital Europe

22. Handelsblatt Jahrestagung Banken im Umbruch
The ECB's bond buying should go this far and no further. Source: Marc-Steffen Unger for HB

In a wide ranging interview with Handelsblatt’s publisher, Gabor Steingart, the chairman of the board of directors of Swiss bank, UBS, expressed his distaste for the European Central Bank’s ultra-loose monetary policy. Alex Weber also spoke about why he thinks Germany’s digital transformation is taking so long and where the country could do better. The one thing the former president of Deutsche Bundesbank, Germany’s central bank, from 2004 to 2011, would not be drawn on though, is who he thinks would make a good replacement for the ECB’s current head, Mario Draghi, when Mr. Draghi’s term ends in 2019.

Mr. Weber, the global stock markets are performing well. Are they doing too well?

Naturally, the massive support from very expansionary monetary policy has boosted stock markets. One of the side effects of quantitative easing in the US was that the US stock market grew by 30 percent per year over three years. And if the American Federal Reserve now reduces its balance sheet – which it must and should do – it will reverse exactly this policy.

What do you think the consequences will be?

The real economy is certainly providing a tailwind for the stock market. But any about-turn in central bank policy will put a damper on the market.

The economy has picked up, but nowhere near as much as the markets. The S&P 500 has risen 250 percent since the Lehman Brothers collapse. The real economy and the financial markets have to a certain extent decoupled. Are share prices now set to plunge?

I don’t think there will be an immediate reversal, but I think there will be significant headwinds. Company takeovers continue to offer inspiration to the markets, particularly in the US. Many banks will also be able to keep their share prices up for a certain period, thanks to their good capital resources and share buybacks. But I think we have seen most of the dynamism on the stock markets for now. That’s why at UBS we currently regard diversified portfolios as more attractive than pure stock portfolios. But we don’t believe that a crash is imminent.

So we’re in a very risky phase. Central banks are gradually switching from buying up financial securities to selling them; central banks need to clean up their balance sheets, which means shrinking them. Do we need a different type of person at the helm of the Fed?

Janet Yellen has done a good job. There has been speculation in the US that Gary Cohn stands a good chance of succeeding Janet Yellen. I know him well. He was the second-in-command at Goldman Sachs and has an extremely good understanding of the markets. In a phase where the Fed is reducing its balance sheet, and we’re talking about what that means for the markets and the real economy, it could make a lot of sense for a market expert to play a role in American policy. Whether that’s as head of the Fed remains to be seen.

Europe’s central bank chief, Mario Draghi, has turned 70. Did you send him your best wishes on his birthday?

Yes, I send him my best wishes every year. I also see him occasionally – we’re both members of the “Group of 30,” a grouping of central bankers, economists and top bankers.

What did you write to him?

As always, I expressed my best wishes and wished him luck. I am firmly convinced that the next two years will demand the ECB president’s full attention.

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