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All investors can talk about right now is the long-term refinancing operation conducted by the European Central Bank last month to inject liquidity into the tightening banking system.Despite recent optimism, however, Bart Oosterveld pointed out yesterday that the liquidities themselves are important but only short-term stop-gap measures and will have to be repeated.
Oosterveld is the head of the Sovereign Risk Group at Moodys.
“These are important parts of policy,” Oosterveld said at a conference sponsored by Bloomberg Link yesterday. “The fundamental challenges that Europe is facing are medium-term…[and measures like the LTRO or coordinated central bank action] will not solve the underlying problems.”
The LTROs’ role in staving off a banking crisis–not to mention coordinated measures by six major central banks to make dollars more cheaply available–has effectively bought European politicians time to make more drastic changes to the eurozone’s problems. Initiatives that EU leaders have undertaken so far, Oosterveld said, “are probably directionally correct but they take time to implement and they take time to act.”
However, he added, “When you buy time you have to do something with that time…Central banks will be asked to buy time a few more times.”