The European Central Bank’s twin 3-year refinancing operations, known as Long-Term Refinancing Operations (LTROs), have not solved Europe’s problems, but have distorted markets which are now reacting excessively to marginal pieces of news, Saxobank’s chief economist Steen Jakobsen said on Friday.
The operations, launched in December and at the end of February, were welcomed by many analysts who argued that they stabilized Europe’s banking system and prevented a credit crunch. They enabled banks in troubled periphery countries to access funds.
"It is very significant that everyone is calling the all clear for Europe that the LTRO has worked; in reality the picture is very different. If you look at the performance of the IBEX the Spanish market, of the Portuguese PSI index, they are trailing the rest of Europe by 26 percent,” Jakobsen said.
He believes investors can profit from the differential between the Northern and Southern European stock markets.
“Equities seem to be the play by which you can play the North-South divide which in my opinion gets larger and larger,” he said.
As markets oscillate aggressively, the macroeconomic picture needs to be taken with a pinch of salt, according to Jakobsen.
“Rationality has been replaced by easy money. Easy money is not a solution but it is the only solution the politicians are willing to take because it is not on their books, they are not accountable for it,” he said.