We know the drill—the ECB is worried about headline inflation, signaling they’re going to start tightening rates next month.
Dr. Doom himself told me on my show this morning that that isn’t a good idea. “That's a mistake, he said.” Given problems in the banking system, Roubini says the ECB is rushing too fast into hiking rates.
Roubini told me he sees Spain as biggest Eurozone problem. “Too big to fail, but also too big to sail.”
The combination of raising interest rates too soon and the contraction of the periphery will lead to a strengthening Euro and loss of competitiveness of the Eurozone, according to Roubini.
So will oil expedite or influence the policy he sees as doomed? Short answer: Yes.
Long answer in Roubini speak: “It will lead to the acceleration of monetary tightening in those current currencies that are behind the curve. If China doesn't move much, nobody wants to lose market share to China. In the case of advanced economies, so far, the Bank of England is planning on inflation being above target and signaled an increase in interest rates might not end soon; the ECB is raising rates saying it might be the beginning as a series of interest rates increases; while Japan and the United States are staying so far on hold. So the policy response of the monetary side will be differentiated across-countries where inflation is and how much they're worried about headliners and core inflation.”
P.S. Roubini’s accent is Closed Captioning’s worst nightmare.
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