Wilbur Ross on Bank of Cyprus – VIDEO
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 quarter—well-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.
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 plans—but 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.
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.
Ross said plans like quantitative easing could only have a “limited” effect and what is really needed is change by governments.
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.
