ECB Press Conference

The introductory statement from Mario Draghi is now available.  The ECB have also posted some additional notices following today’s Governing Council meeting.

67 thoughts on “ECB Press Conference”

  1. Does not seem to be anything in the OMT programme that wasn’t already well-flagged in the last few days.

    Perhaps the most disappointing thing about today was the refusal, again, to cut rates further. Isn’t the EZ technically in (or entering) a recession at the moment?

    What do we get instead? Guff about energy prices. Haven’t we been here before when last year LBS was whittering on in the FT about headline inflation? The result then was 2 rate hikes followed by the near collapse of the Italian bond market.

    One would have thought that the ECB would have learnt that headline (as opposed to core) inflation is not really important over the medium or long term, particularily when unemployment is high and growth is non-existant.

    And before anyone mentions that inflation in Germany is above 2% – relatively high inflation in the core is both desirable and necessary for intra-eurozone convergence and to support peripheral economies

    When the boot was on the other foot, when Germany was struggling 10 years ago, rates were held far lower than was healthy for the periphery. Today just emphasizes the Germanic bias of the ECB and, more importantly, its lack of willingness to support growth and employment in peripheral countries.

  2. …in particular i note they have set no ex ante quantitive limits on the size of the OMTs but isn’t this de facto set by the size of the ESM/EFSF funding…or is there scope for quantitive easing in what he is saying?

  3. Will they start buying Greek, Portuguese and Irish bonds now? Considering we are in a program?

    Its a strange one, if Spain has to apply to a bailout due to rising yields, the immediate ECB intervention that may proced it may alleviate the need for a bailout at all!

  4. @vbarrett

    The simplified version is, specifically:

    1. No limit (size of ESM not a limit)

    2. They just print money and buy short dated bonds.

    3. They ‘sterilize’ (mop up) that new money supply by getting banks to put the money on term deposit with the ECB for a week at a time, selling ECB debt secutities etc. (Note, expect German attention as to whether this really is sterilization).

    4. They buy the short dated bonds and provide an exit for holders.

    5. They will only do this if the state concerned continues to do what it is told under an official assistance programme, so holders of longer term bonds still have to price in political / default risk to some degree.

    6. If enough people believe them, they won’t have to buy much.

  5. FT on Grumpy’s point 5

    “The ECB retains the ultimate sanction: it could cut off a country that failed to meet reform promises. But since this would leave it with losses on its bond holdings, as well as risking the instant break-up of the euro, it is a form of mutually assured destruction that will be tough to enforce.”

  6. “6. If enough people believe them, they won’t have to buy much.”

    I’m not sure that’s true for a country such as Greece that is far enough away from solvency so that even well-priced money is likely to be more than it can afford. If bond buying by the ECB is clearly just putting off the day of reckoning when losses are allocated between the private and public sectors, it will take an adventurous buyer (or an oppressed Greek source of funds) to buy bonds far beyond T-bill levels of maturity.

  7. @Rob S

    “Will they start buying Greek, Portuguese and Irish bonds now?”

    I don’t think there are any plans to – not before they ‘go back to the markets’ anyway.

  8. Thanks Grumpy

    If i understand you correctly is that they will engage in QE if necessary but through the sterilisation process it ain’t really QE is what they are saying, although the germans may take issue with that ?

  9. Weidemann is straight out of FF central casting. He is banging the table in opposition but so far intends to do precisely nothing about it other than shout.

  10. Der Spiegel International

    09/06/2012
    Unlimited Bond Purchases
    ECB Head Draghi Backs Up Pledge to Save Euro

    European Central Bank chief Mario Draghi on Thursday overrode German concerns and announced a program allowing for unlimited purchases of sovereign bonds from struggling euro-zone member states. The plan, however, is not without conditions.

    The European Central Bank has resembled a sieve this week. Ahead of Thursday’s much anticipated press conference, financial websites and business papers were full of reports detailing ECB President Mario Draghi’s plan for holding down the borrowing costs of debt-plagued euro-zone member states. Discretion was in short supply.

    When Draghi did finally step in front of the microphone on Thursday, he confirmed what most already knew. The ECB is to launch a new bond-buying program to hold interest rates on euro-zone sovereign bonds in check. The program, called Outright Monetary Transactions (OMTs), allows for unlimited ECB purchases of sovereign bonds on the secondary market. The program is to focus on bonds with a period of three years and less.

    “OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi said in a statement. “Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios.”

    http://www.spiegel.de/international/europe/ecb-president-draghi-announces-unlimited-bond-buying-program-a-854374.html

  11. Referendum on Europe gathers pace …

    09/06/2012
    A Referendum on Europe
    It’s Time to Ask the People What They Think
    By Dirk Kurbjuweit

    The Germany democratic system has suffered as a result of the euro crisis, but it has also made fighting the crisis harder. Now it’s time to hold a referendum on European integration. Only then will Berlin have the democratic legitimacy it needs to take effective action.

    http://www.spiegel.de/international/europe/essay-on-why-germany-should-hold-a-referendum-on-europe-a-854000.html

  12. So long as the bonds are on the books of ECB the sterilisation will contue, which suck money from the economy. It’s a liquidity solution, but is it what we need?

  13. New York Times

    Central Bank to Snap Up Debt, Saying, ‘Euro Is Irreversible’

    Mario Draghi, the E.C.B. president, overcame objections by Germany and won nearly unanimous support from the bank’s board for a program of buying government bonds that would effectively spread responsibility for repaying national debts to the euro zone countries as a group.
    The announcement is one of the biggest steps yet on the uncertain and winding road to a more federal Europe, instead of the collection of nation states that often seem to share little more than a common currency and a slumping regional economy. While many risks remain, Mr. Draghi demonstrated once again that he is Europe’s most indispensable leader, perhaps the only one capable of brokering an accord among politicians whose mistrust of one another and national concerns have allowed the crisis to boil for two and a half years.

    http://www.nytimes.com/2012/09/07/business/global/european-central-bank-leaves-interest-rates-unchanged-at-0-75-percent.html?hp

    I’m sure President Obama relaxed a little as he prepares for his bash tonight trying to follow the incomparble President Clinton.

  14. @Gtfaway

    No. It is not what we need. It buys time and allows holding critical and essential actions to take place.

    Step back: we have an ECB and a Politico when a spot of bother arrives …. tut

    ECB looks at others such as US and China and their ‘independent’ and powerful CBs … which have more power. So why can’t we have that power, asks the ECB in a moment of reflexion? We’re lumbered with a neo-bundesbanke, as distinct from an inclusive European, mandate. Drat. Double drat!

    So to get aroung the neo-b we lay 2 eggs EFSF and ESM …. increasing the complexity of inter-relations to allow intermediate action …. while we wait, interminably it appears, for an effective mandate that the European Politico appear incapable of agreement on.

    Evidence: thus far ECB has bought >200 billion The US Fed has bought up 1,650 billion – the latter showing how a lender of last resort flexes its muscles. [China anyone?]

    From Systems theory a simple Central Bank–Politico relation appears to be more effective than the set of relations in an ECB, Politico, EFSF, ESM configuration.

    So it appears that the indepenence/power of the ECB has a disability, which it cannot overcome on its own; it requires political action from Politico. Like Godot, we wait, and wait …. for a Social Democrat Majority in EU Power.

  15. ‘Significantly, Jörg Asmussen, Mr. Weidmann’s friend from university days and the German member of the E.C.B.’s executive board, has publicly agreed with Ms. Merkel that the bank’s bond buying is a necessary evil to promote stability and buy time for European leaders to act — and for Spanish and Italian leaders to continue to overhaul their economies. ‘

    Worth noting that he is one of its authors. Sound man Jörg! Now, can we get to that other little matter of a respectable chunk of odious dodgy casino capitalist debt in Hibernia finding its way somewhere else? – no hurry – end of October will be grand ….

  16. Monetary transmission breakdown, under which guise this latest intervention has been introduced, is not due to sovereign yield differentials. It’s due to the breakdown of interbank markets. This breakdown is due to (well-placed) mistrust of banks in counterparty solvency. The widening of sovereign yield spreads – a two-way street as German yields are as unsustainably low as Spanish, Irish and Italian yields are unsustainably high (at least in a currency union) – are in large part a function of the perception that all banks are the responsibility of the taxpayers of the countries in which they are resident.

    Until the fundamental problem of banking system insolvency is acknowledged and addressed, interest rate and other measures adopted by the ECB have little chance of curing the problem. Monetary policy transmission should work at a micro level, as in Bank A lending unsecured to Bank B, Bank B to Bank C, and so on. The quantity and cost of ECB-supplied money is and will be immaterial until the banking problem – recognition of which involves necessarily the closure of many, with losses falling on creditors as opposed to governments/taxpayers – is addressed.

    Herr Schaeuble’s FT analysis last week of the problem (now 5 years and 1 month on) as being due to the collapse of Lehman’s 4 years ago makes one think that the real problems will not be faced or dealt with in the current German political cycle.

  17. Grammar correction – ” The widening of sovereign yield spreads – a two-way street as German yields are as unsustainably low as Spanish, Irish and Italian yields are unsustainably high (at least in a currency union) – IS in large part a function of the perception that all banks are the responsibility of the taxpayers of the countries in which they are resident.”

  18. The Euro remains surprisingly stable. Draghi may have done enough to dampen fears of bank runs on the periphery. A German recession is just the ticket we need to loosen the purse strings.

    Never forget that as Von Clausewitz said nations act in their own interest.

  19. This is disgraceful. Nothing more than a perpetual bailout for banks at the people’s expense.
    An utter disgrace!

  20. @ seafóid

    Anyone willing to guess how long this crisis will last for ?

    In the grim summer of 1932, John Maynard Keynes was asked by a pressman when on a visit to Washington DC, whether there had ever been anything before like the Great Depression and he replied: “Yes, it was called the Dark Ages, and it lasted four hundred years.”

    Next February, it will be 6 years since HSBC announced multibillion dollar losses on US subprime mortgages.

    There is at least a decade of angst and turmoil ahead – – despite a likely improvement from the current situation in coming years.

    Global growth may improve but from recent evidence, the Chinese will be cautious about the switch of the balance from investment to consumer spending. Stagnant US middle class incomes will continue and there will be no house equity to boost consumer spending.

    The big successful companies employ a fraction of their counterparts in the past.

    General Motors had over 618,000 employed in the US in 1979 – – in well-paid jobs; today, General Electric employs 133,000 and Apple 47,000.

    The French newspaper ‘Ouest-France’ this week chided the government for presenting an unrealistic outlook of times ahead.

    John Shoven, director of the Stanford Institute for Economic Policy Research (SIEPR), recently said: “People cannot expect to finance 20-25-year retirements with 35-year careers. Not in Greece [or] the United States.” 

    The credit boom masked the reality of a growth crisis in Europe.

    The turmoil will be in response to inevitable change because countries will have to adjust to paying their way without the aid of fast rising debt.

    The insiders will fight to retain their priviliges but at some point in a country like Ireland, the collective power of the sans-culottes will get the attention of political leaders.

    It happened in 1979 after the Government cravenly gave in to farmer demands to rescind a planned tax levy. PAYE income tax reform followed one of the biggest street protests in the history of the State.

    There is a reason why there is seldom serious attention given to the issue of job creation.

    Politicians tend to keep their fingers crossed with the next election in mind. Nevertheless, the speed in which François Hollande dropped his growth agenda is surprising.

    However, a country that is close to the end of the road soon finds that the cliff beckons.

  21. Our old pal Otmar Issing ( who has a neat little nixer these days on Blue Peter’s team for the matrixsQuid) remains true to his form ….

    In Germany’s hawkish mainstream economic and political circles, the ECB programme was condemned yesterday as a nail in the coffin of the Frankfurt bank’s inflation-fighting mandate. Former ECB economist Otmar Issing said buying up sovereign bonds “politicised” the ostensibly independent central bank. “The idea of the euro was that it would be an apolitical currency,” he said -in Prague. “If this is no longer the case, the founding principle of the euro has been compromised.”

    Angela continues to pust the ‘Fiscal’, as distinct from the ‘Financial System’ nature of the crisis.
    ‘GERMAN CHANCELLOR Angela Merkel has insisted no actions by the European Central Bank can take the place of fiscal reform among crisis-hit euro zone members.

    http://www.irishtimes.com/newspaper/finance/2012/0907/1224323695498.html

    When Issing plays the joker can Sinn be far behind? Looking forward to Press Review from Berlin this afternoon …

  22. @Michael Hennigan

    Bit off Thread: a useful overview of the Sunni/Shiite divide in Islam and its centrality to any understanding of politics, economy, and society in the Middle East.

    09/06/2012
    The Prophet’s Curse: Islam’s Ancient Divide Fuels Middle East Conflicts
    By Christoph Reuter

    They began as a cry for freedom in the Middle East, but the Arab rebellions have become increasingly characterized by an ancient sectarian conflict between Sunni and Shiite Muslims. SPIEGEL examines how the power struggle between the two groups is sparking new fears along old frontlines.

    In the countries that follow the Muslim faith, the lines between past and present often blur, making it seem as though the past is not over, and certainly not forgiven. Indeed, the past can come terribly alive here, and it can turn terribly deadly, again and again, every day.

    http://www.spiegel.de/international/world/how-islam-s-ancient-sectarian-divide-fuels-conflict-in-the-middle-east-a-854106.html

    Worth noting, in the spirit of cosmopolitanism, that Islam is the faith of an increasing number of Irish citizens and immigrants –

  23. @ Paul Quigley

    “Harrison argues that it’s a scheme designed primarily to shore up core banks”

    http://monthlyreview.org/2012/09/01/implosion-of-the-european-system

    “That Greece is today at the heart of the conflict is both because Greece is part of the eurozone and because its people hoped to escape the fate of the other (ex-“socialist”) peripheral Balkan countries. The Greek population in general thought (or hoped?) that having avoided the misfortune of being governed by “communists” (powerful in the heroic times of the Second World War)—and by the grace of the colonels!—they would not have to pay the price imposed on the rest of the Balkans. Europe and the euro would work differently for them. European solidarity, and especially that of the eurozone partners, however feebly it showed elsewhere (where the crime of “communism” was to be punished), would act in their favor.

    The Greeks are stuck with the outcome of their naïve illusions. They should know now that the system will reduce their status to that of their Balkan neighbors, Bulgaria and Albania. For the logic of the eurozone is no different from that of the European Union; on the contrary, it reinforces its violence. In a general fashion the logic of capitalist accumulation produces an accentuation of the inequality among nations (it is at the source of the construction of the core/periphery contrast); and accumulation dominated by the generalized monopolies reinforces still more this immanent tendency of the system. Against this, it will be claimed that the European Union’s institutions provide the means to correct intra-European inequalities through appropriate financial support directed to the laggard countries within the Union; and this is believed by public opinion in general. In reality, this support (apart from agriculture, a question that will not be discussed here) is too insufficient to permit any catching up; but, even graver, it facilitates penetration by the generalized monopolies and so strengthens the tendency to unequal development through a greater opening of the economies involved. Further, this assistance aims to reinforce certain sub-national regions (for example Bavaria, Lombardy, and Catalonia) and thereby to weaken the capability of national states to resist the monopolies’ dictates.

    The eurozone was designed to aggravate still further that movement. Its fundamental nature is defined by the statute of the European Central Bank, which is forbidden to lend to national governments (and even to a supranational European state were one to exist, which is not the case), but lends exclusively to banks—at a ridiculously low rate—which, in turn, draw from their investments in national bonds a rental income that has reinforced the domination of the generalized monopolies. “

  24. @MH

    Your contribution prompts me to repeat the link to the recent piece by Brendan Keenan in the Indo.

    http://www.independent.ie/opinion/columnists/brendan-keenan/brendan-keenan-questions-about-the-future-of-eu-lurk-beneath-debtcrisis-talks-3221555.html

    Draghi is dealing with the symptoms, not the disease. Hopefully, the actions of the ECB will be sufficient to allow time for a cure. He has spelt out the outlines of what this might be in the short term, underling that there does not have to be a choice between extreme solutions of a full United States of Europe and a break-up of the euro and that results can be achieved without treaty change. Unfortunately, the others in the “Four Presidents’ Group” (Commission, Parliament, Van Rompuy, ECB) appear to be listening to the siren voices of the politicians looking for cover for unpopular decisions cf.

    http://www.euractiv.com/future-eu/barroso-aligns-merkel-push-treat-news-514619

    Of the Four, it is clear that Draghi is now the key player.

  25. @ DOCM

    Germany had a trade deficit with the rest of the EMU in July.

    http://www.finfacts.ie/irishfinancenews/article_1024875.shtml

    As to agreeing on issues such as pension age etc with for example France, it’s difficult to foresee much progress.

    Draghi deserves praise for rare courage.

    The following describe the more typical leadership:

    Alexandre Ledru-Rollin (1807-1874): “There go the people. I must follow them, for I am their leader,” and American comedian Groucho Marx (1890-1977): “Those are my principles, and if you don’t like them… well, I have others.”

  26. Arthur Beesley in the IT

    “THE EUROPEAN Central Bank has taken new steps to ease Ireland’s return to private investment markets as part of a big but contentious new push to calm the debt crisis by intervening again in sovereign bond markets.”

    how valid is this ?

    Whenever Croke Park is ditched won’t there be a new wave of bank losses to contend with ? It all seems to be very fragile and way too early to talk about a return to the markets (meaning selling billions of 10 year bonds, not 6 month notes )

  27. Dr. Gurdgiev has an interesting analysis over on his trueconomics blog.

    I would tend to agree with some of the comments above that Draghi has bought some time…. but will the politicians squander it? I suspect we know the answer to that.

  28. @ MH

    John Plender has an accurate but incomplete take on the situation.

    http://www.ft.com/intl/cms/s/0/46503c46-f6b2-11e1-9dff-00144feabdc0.html#axzz25Zy8juhm

    Merkel has been selling a fairytale to the German electorate and she seems to have finally recognised this by her acquiescence in the action by Draghi. The other aspect is the transparent political calculation underpinning her push for treaty change i.e. as a counterpoint to a period of economic stagnation, at best, of a recession, at worst, in the German economy.

    Another example is the re-emergence of the issue of a common corporation tax rate for the EZ (see link posted above) which is quite irrelevant in the broader context but serves very well in populist debate.

  29. Corporate tax rate!
    I see a corporate tax rate band emerging. Countries struggling economically will be entitled to a lower rate. The devil will be in the details. The days of laissez faire corporate tax policies in the EZ are ending.

    Remember that Draghi’s bond buying initiative is conditional on the outcome of negotiations with countries that apply for relief. Frau Merkel will be looking over one shoulder and Monsieur Hollande over the other shoulder.

  30. Yves Smith at NakedCapitalism adopts a more cautious tone….

    ….
    Markets Applaud Draghi’s New, Improved Kick the Can Down the Road Strategy

    Now of course, there were other differences, at least in the mind of Mr. Market. The belief is that the ECB, which is the only actor positioned to buy the eurozone enough time to create a fiscal union and unified bank regulation, has gotten control of the game board. Draghi made clear that only one central bank was opposed to the OMT, which will engage in “unlimited” and sterilized purchases of one to three year government bonds to meet target, but unstated, interest rates. Of course, the Germans central bank was in opposition, and the German media took up the cry:
    “Financial markets cheer the death of the Bundesbank.”

    But what does this mean in practice? Well, first, neither Italy nor Spain have yet formally asked for help (the first step in the dreaded “conditionality” process. Italy does not want to ask before Spain, and Spain has and presumably is continuing to try to get some waivers from the sort of conditions that have been imposed on other borrowers before it requests assistance (the press is now reporting that Spain will submit its petition on September 14

    http://www.nakedcapitalism.com/2012/09/markets-applaud-draghis-new-improved-kick-the-can-down-the-road-strategy.html

  31. @ Seafoid

    “It all seems to be very fragile and way too early to talk about a return to the markets (meaning selling billions of 10 year bonds, not 6 month notes )”

    You do realise that Ireland recently sold €6.2bn in long term bonds, and that our five year yield is now around 4.4%, right? We’ve already returned to the markets, and with a bang.

  32. @ BEB

    Wonderful

    But why are 10 year yields still 450bps over bunds ?
    You are obviously up for it but Ireland is paying through the nose compared to the UK or the Netherlands.

    We are nowhere near equilibrium yet.
    And the road ahead is unclear.

    Keep up the good work.

  33. Seafoid,
    What do you mean by paying. We are not issuing 10 year fixed coupons with a bulet redemption.

  34. @MH

    Re : “John Shoven, director of the Stanford Institute for Economic Policy Research (SIEPR), recently said: “People cannot expect to finance 20-25-year retirements with 35-year careers. Not in Greece [or] the United States.”

    http://www.ft.com/cms/s/0/78a22320-d892-11df-8e05-00144feabdc0.html

    Jeremy Siegel, professor of economics at the Wharton School in Philadelphia, produced a model, in his The Future for Investors, that suggested that westerners’ comfort in retirement was almost wholly dependent on productivity growth in the developing world. If the developing world keeps raising productivity at 6 per cent per year, then the US could meet the needs of its ageing population while barely raising the retirement age from 62. If, however, developing world productivity growth stalls completely, then the US retirement age by 2050 will have to rise to 77.

  35. The bond portfolio is like a smile missing a few teeth , Tull. How many years since we last had a 10 year ? The FT uses something maturing in Oct 2020 as the reference bond. How long more is that carry on likely to go on for ?

  36. Press Review: Berlin

    09/07/2012
    The World from Berlin
    ‘The ECB Is Doing Governments’ Dirty Work’

    The ECB’s announcement on Thursday that it is prepared to make unlimited bond purchases in order to lower borrowing costs for countries in crisis could mark a turning point in the euro crisis. German commentators, however, criticize the bank for becoming a hostage to politics.

    http://www.spiegel.de/international/europe/german-press-reactions-to-ecb-bond-purchase-program-of-mario-draghi-a-854566.html

    Enjoy!

  37. “Weidmann has been exposed as an ideological hardliner who, without delay, would prefer to allow an economic catastrophe rather than soften his views, which are far removed from reality. He was maneuvered into the position as head of the Bundesbank as a minion of (German Chancellor Angela) Merkel. But he has failed to offer plausible alternatives for pulling out of the crisis even in major appearances in the run-up to the decision, such as his recent interview with SPIEGEL. As the intellectual successor to his predecessor Otmas Issing, Weidmann, together with his neo-liberal ideas, is one of the most dangerous men in Europe.”

    +1

  38. No Limits
    ECB President Draghi Reaches for the Bazooka
    By Stefan Kaiser in Frankfurt

    European Central Bank President Mario Draghi has taken a bold step this week to contain the euro crisis. The ECB is now planning unlimited bond purchases in order to prevent an escalation of the euro’s woes. The step marks a fundamental shift in efforts to save the common currency — and comes with plenty of risks.

    http://www.spiegel.de/international/europe/analysis-of-ecb-announcement-to-buy-bonds-a-854481.html

    @Dear Lorenzo

    You might ask your neoliberal pal Mairt_een Feldsteen if there is a handy Professorship for Jens in the T-party department? Herr Issing will provide a glowing reference from the matrixsQuid esque Blue Peter elite group.

  39. With a number of countries facing bank runs within weeks Draghi was able to muster determined support for a bond buy back. The Germans have known for some time that the wreckage would finish up in Berlin/Frankfurt. Nobody in Gov’t or Banking was honest with the German public. Instead Frau Merkel spouted the drink your bitter medicine doctrine to the casualties of reckless bank lending on the periphery. The opportunity to borrow low and lend high was enjoyed by most large banks in the larger and stabler countries. Why did they pursue their simple strategy, because they could.

    Sighs of relief can be heard in the German business community because the flow of wreckage is now under control and not left to the whims of speculators in London or New York. This does not mean that Frau Merkel or the Bundesbank will start speaking truth to the public. It is however a good start.

  40. @Mickey Hickey
    “Sighs of relief can be heard in the German business community because the flow of wreckage is now under control and not left to the whims of speculators in London or New York. This does not mean that Frau Merkel or the Bundesbank will start speaking truth to the public. It is however a good start.”

    If that is the genuine reaction in the German business community, then it is certainly a hopeful sign. It means that some sanity and, more to the point, some logic still prevails in German thinking.

  41. Seafoiid,
    One of the cosrquences of the crisis is that nobody in the periphery will be issuing 10 year bullets again in my remaining 20 years of active labour force participation.

  42. Just heard Sean Whelan on RTE Main Evening News:

    And politics might just be the thing that delays Ireland getting a deal to refinance the promissory note part of the bank bailout.

    I don’t know if this was a mistake on Sean Whelan’s behalf, or if it was an effort to move the goalposts on the bank debt negotiation, which should not just about promissory notes.

    Seamus Coffey elucidated on the dangers of converting the PNs to senior debt here:
    http://www.independent.ie/opinion/comment/seamus-coffey-what-makes-us-think-that-spain-will-get-a-deal-that-we-would-want-any-part-of-3131183.html

    Also Alphaville had a good review of Ireland’s October(ish) bank debt negotiation options during the week:

    http://ftalphaville.ft.com/blog/2012/09/05/1146811/irelands-similar-case-for-banking-treatment/

  43. Here is the main problem for me:
    Ireland issues a 5 year bond. It goes to auction and that Templeton guy bids against the rest and buys it for x with a yield of say 3%. Now, Ireland can’t afford to pay this bond (economy shrinking etc) but rather than Templeton take a hit the ECB will buy the bond off him.
    So – peripheral bonds become essentially risk free assets paying a risk premium. It ultimately sets up a stream of risk free guaranteed payment from people to banks.

    It’s a bonanza for bond traders. It is the equivalent of charging people to use money.

  44. @Eureka
    Buying Irish bonds in the present circumstances would not be risk free. Remember that the ECB negotiates with the applicant country the conditions under which the bonds will be bought. For example the ECB could insist on unemployment payments being limited to six months, health expenditures being limited to children under 16 and adults over 65, no state capital expenditures, social assistance cuts, corporate tax increases and so on. The ECB will not be insisting on the minutiae but could limit the size of the envelope in a way that leads to most of the conditions above being adopted or not adopted by our Gov’t which has shown little back bone when the voters continue to demand “goodies” from TDs’.

  45. @ Mickey Hickey
    It’s an interesting point.
    But let’s just say that I buy bonds in Ireland today. Ireland is in the programme. I would have a legitimate expectation that my bonds would be back stopped by the ECB. So if I buy bonds in a country and the country has been okayed by the ECB at the time I buy those bonds it is effectively a guarantee.

    Now, this move actually increases the degree to which countries are controlled by the ECB. Not only does it determine interest rates, it now also determines policy and can cut off liquidity to banks. This move is a coup by banking in Europe. I saw too where Irish corporate bonds have been downgraded by Moody’s because of fiscal policy. There is no pressure point they will not use to have their money paid back.

    Europe is in the clutches of a banking elite.

  46. The ECB contract is not with individuals it is between National Gov’;ts and the ECB. For the individual investor risk is greatly reduced but not entirely eliminated.

    In an ideal world banks could fail, borrowers could renegotiate their loans and Gov’ts could regulate responsibly and we would not have economic collapses or bubbles. I look at the ECB as guarantor of last resort. The ECB does not want to get involved in the internal affairs of any country and particularly not Ireland. Ireland was not governed responsibly and as with any debtor in default we must surrender some control to the creditor. How we arrange our internal affairs in order to balance our books is solely in the hands of of our TDs’, a frightening prospect but c’est la vie.

    We are very lucky to have the ECB to fall back on. They do not eat their young for breakfast like the IMF. It should be noted that the IMF has a small role (disciplinarian) to play in the buy back arrangements.

    For Ireland things are now looking better than they have since 2007.

  47. @ Mickey Hickey
    It reminds me of that quotation “as long as I control a country’s money I care not who makes the laws”
    The ECB controls the money…
    You mightn’t be as gung-ho after the budget. The retail sector, already on its knees will see no relief..
    The ECB don’t eat their young but they do make them poor and redundant – watch what unfolds in Greece and Spain…
    We’ll talk again in March 2013 when we’ll be even further from economic recovery than we are now

  48. from Delusional Economics

    [who gives Draghi the Thumbs UP …

    Draghi delivers (never mind the economy) [+ vido of full press conference]
    By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

    The SMP is dead! Long live the SMP!

    OMT? Surely they could have just called it SMP2

    What am I talking about?

    Overnight Mario Draghi announced the new emergency program designed to support the ailing Eurozone. Most of the package was leaked out prior to the meeting so it wasn’t too much of a surprise when it was announced. The “unlimited” scale was, however, certainly an upside surprise.


    Given the structure of the program I see no reason why governments won’t now adjust their bond programs down to the short end of the curve in order to come under the ECB umbrella. Mr Draghi was asked about that response and didn’t appear to have an answer as to how he could stop it occurring.

    http://www.nakedcapitalism.com/2012/09/draghi-delivers-never-mind-the-economy.html

  49. The short term nature of funding is deliberate. It keeps governments on a shorter leash. He’s actually very happy with this I’d imagine

  50. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/433e3d60-f909-11e1-945b-00144feabdc0.html#ixzz25ySdeP7t

    Peter Bofinger, a member of the government’s council of economic advisers and professor of economics at Göttingen university, said bond-buying in the open market was “a standard instrument of monetary policy” which had been used by the Bundesbank itself when it was in charge of German monetary policy.

    “The problem in Germany is that somehow public opinion is like the behaviour of a child,” he said on Friday. “They know definitely what they don’t want. They don’t want bond purchases. They don’t want eurozone bonds. They don’t want a debt redemption fund.

    “Yet most of these people still say they want the euro. If they said they wanted to go back to the Deutschmark, it would be a more honest approach.”

    http://www.ft.com/intl/cms/s/0/433e3d60-f909-11e1-945b-00144feabdc0.html#axzz25yPwJPZB

  51. @ DoD

    There was an interesting article in the FT this weekend about the Dutch election. The Dutch don’t like to bail out the periphery but at the same time they like their EZ- 70% of dutch exports are sold within the bloc. If the EZ collapsed it wouldn’t be ideal for Northern Europe so in between those 2 positions there is plenty of politics to play.

  52. Netherlands
    Election suspense
    4 September 2012PresseuropNRC Handelsblad, Trouw, De Volkskrant

    Rupture or continuity? The Dutch go to the polls on Sept. 12 for early elections marked by the crisis. Liberal Prime Minister Mark Rutte seems well ahead, but on the left there’s tough competition to come up with an alternative. For the Dutch press this close vote risks prolonging the political crisis.

    http://www.presseurop.eu/en/content/press-review/2636081-election-suspense

    We could do will less of the arrogance of the present Dutch finance minister!

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