Mario Draghi hesitate undoubtedly go further in its unconventional policy. At its monthly meeting in Naples, this 2 October, the Governing Council of the ECB adopted the technical details-which were attendus- buyback programs of securitization products that were announced at the meetings in June and September.
Specifically, the repurchase program bonds ( covered bonds ), that is secured by real estate programs or debt obligations of local authorities, will begin in mid- October. The share repurchase program of securitization products credits called ABS ( Asset Backed Secutities , securities backed by assets) will follow. Securities accepted will be roughly those accepted by the ECB as collateral today with the exception of Greek and Cypriot market, today refused. Some will benefit from an exemption under several conditions (monthly report on the state of assets, asset value guarantee top 25% to the price of the product, etc.). Both programs have a duration of two years.
A QE, but private
This is well and truly quantitative easing (QE for “quantitative easing” ) to the European, since there will be no sterilization and there will be pure money creation. Mario Draghi made no secret Thursday that the goal was to bring back the ECB’s balance sheet “ to the level of early 2002 . “He confirmed that this could lead to” additional EUR 1,000 billion “on the review. But Mario Draghi has stressed the “maximum” nature of this figure. There is a maximum of 42 billion asset purchase per month on average, still below the American program. Measures may be stopped at any time. The aim is that this money goes directly support established business credit, particularly for SMEs, including in peripheral countries where the situation remains very difficult as Greece and Cyprus.
Unanimous
Will it be effective? Mario Draghi said his “ultimate reference” as to the success or failure of these programs will be the evolution of inflation expectations. He repeatedly hammered “ Governing Council was unanimously ready to go further unconventional measures if sustained low inflation persisted . “Obviously, the important word here is unanimous that sounds strangely a month after the negative vote of the Bundesbank on the rate cut.
Change your
It sounds even more strange that, in this October meeting, the tone changed dramatically compared to last month. A month ago, ten days after the Jackson Hole speech, Mario Draghi had clearly defied Angela Merkel claiming States who could of fiscal stimulus. The ECB president had then made it clear that “ monetary policy could not only bring inflation back . “Nothing like this month. Mario Draghi held technical details and was confident of the effectiveness of measures taken to bounce inflation.
Take note of Germany’s refusal to go further
Most importantly, it has changed its discourse States. He spent a lot of time to call for “structural reforms”, he has taken the example of France or a small Italian entrepreneur harassed by the rules and taxes, but he has mentioned that once The idea that those with fiscal space to act in favor of the economy. It is as if the wall of denial erected in Berlin by Wolfgang Schäuble and Angela Merkel during the month of September had borne fruit. Mario Draghi noted that he did not manage to move to Germany. So he simply carry its unconventional policy “ under its mandate . “
” No market “
” There are no big ‘market’ here , “has clearly stated Mario Draghi. “ We know that our actions would be more effective if other policies were carried out. But we simply complete the task dictated by our mandate. Each player has his own role to play. “These sentences sound like the abandonment of a strategy that started in Jackson Hole on August 22 and was intended to put pressure on Berlin. Mario Draghi declined clearly and in all likelihood, unanimity on which he was so insistent during the press conference means there will be no public QE. The point of “mandate” is also significant when Mario Draghi will travel to Luxembourg on October 14 to explain the UNWTO. Germany does not go further and the ECB noted.
Short of solutions
The decline of the ECB may just be temporary. But it is bad news for eurozone needs a coordinated policy to avoid this famous period of “long inflation. “As pointed out by an Italian journalist, measures of the ECB, while useful does not address the main problem of several major countries: the demand. What good is borrowing to invest if demand is permanently weak and pressure on prices and costs will increase? It is not certain that these 1,000 billion “maximum” can actually reach out eurozone unstuck. But Mario Draghi on Thursday appeared short of ideas to go further. We thus understand the disappointment of the market after this press conference. At 17 hours, the CAC 40 lost 2% and the euro resuming 0.25%.
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