Europe Economy

Wilbur Ross: Why Draghi is right

'Deflation is very tricky': Wilbur Ross
VIDEO2:3502:35
'Deflation is very tricky': Wilbur Ross

Mario Draghi, the president of the European Central Bank, has faced criticism on several fronts in recent weeks: for being too bold with the bank's policies, or not being bold enough.

Yet he has support from one quarterwell-known investor Wilbur Ross, the chairman and CEO of WL Ross & Co. Ross's company has profited indirectly from the ECB's actions, via his now-sold stake in Bank of Ireland, and currently has a substantial stake in Bank of Cyprus.


Ralph Orlowski, Getty Images News
Wilbur Ross, chairman and CEO of WL Ross & Co.
I'm selling 6 times more than buying: Wilbur Ross

Ross told CNBC: "Mario Draghi is quite right when he says Europe needs structural reforms to bring joblessness down.

"Those countries with the most liberal labor laws, like Ireland, have had the fastest recovery. Those with the most restrictive labor laws have had the slowest. Policymakers thought they were protecting workers, but have been making it worse."

Draghi has been criticized by some in Germany for turning the ECB into a "junk bank" through its latest asset-buying plansbut market reaction to the announcement of his plans last Thursday suggests many think he has not gone far enough to stimulate the single currency region's economy.


Wilbur Ross
Why I'm ready to invest more in Europe: Wilbur Ross

The euro zone is now threatened by Japanese-style deflation, with annual inflation falling to a five-year low of 0.3 percent in September. Its growth has also stalled, with even Germany, which for years has had a reputation as the most solid performer in the currency bloc, looking less promising after much worse than expected industry and manufacturing figures this week.

The International Monetary Fund now thinks there is a 30 percent chance of the euro zone slipping into deflation over the next year, and close to 40 percent chance that it could enter recession for the third time in six years.

Sovereign debt the 'ultimate bubble': Wilbur Ross

Ross said plans like quantitative easing could only have a "limited" effect and what is really needed is change by governments.

"Draghi should continue to use his bully pulpit to try and encourage more intelligent fiscal policy in Europe," he said.

"The troika (of international lenders to bailed out countries) has imposed some extremely stringent measures on those countries it has been bailing out. Those are fine from the point of view of sovereign debt, but it's hard to grow an economy."



Bank of Cyprus: Ackermann 'uniquely positioned'
VIDEO2:1802:18
Bank of Cyprus: Ackermann 'uniquely positioned'

Ross said he was "hopeful" that Bank of Cyprus would pass new asset quality tests imposed by the ECB, later this month. The bank has just nominated former Deutsche Bank chief executive Josef Ackermann as chairman, a move which Ross welcomed. He argued that a lot was hanging on the results of the tests.

"Until banks find out whether the ECB thinks they have adequate capital, they're not going to be aggressive about making loans," he said.