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Actually, we do not think that the European Central Bank will cut the repo rate. If the economic situation becomes worse, they might consider cutting interest rates further; however, we do not think this will happen neither next week nor even in June. There are some speculations that the central bankers will consider another interest rate cut, whereas the probability that they will keep interest rate unchanged is quite high at the moment.
Recently, a key pro-austerity study done by two Harvard professors was found to contain some incorrect calculations. As the theory of tough austerity measures during global downturn is being questioned, do you admit that the Eurozone should consider more fiscal expansion?
Unfortunately, K. Rogoff and C. Reinhart made some severe mistakes in their report, and for those scientists it is a shame that something like this could have happened. Nevertheless, I believe it is not an argument to claim that we need more fiscal expansion at the moment. The situation is very severe in most European countries considering public debt, and we are assured that they must continue to consolidate the public budget. To sum up, we do not believe that the time for more fiscal expansion in the Eurozone has come.
What is your economic forecast for the Eurozone for the second half of the year?
According to our estimates, stabilization will occur at a very slow pace. Our forecast is that GDP will decline in the first, second, and probably even in the third quarter. It will take quite a while until the economic situation in most European countries becomes better. We share quite optimistic view on Germany's economy, but for the Eurozone as a whole, we are rather pessimistic. We believe stabilization might take place in the last quarter of the year.