Last week Mario Draghi asserted that the European Central Bank was prepared to take action in order to save the common currency from collapse.
Then the ECB President uttered those immortal words; ‘We will do whatever it takes. And, trust me, it will be enough.’ And the financial world took breath.
Today it was finally able to exhale. The news coming out of the ECB’s hotly anticipated monthly meeting is that the speculation was in part correct, the ECB is gearing up to buy euro-zone bonds – but not yet. Also, any new ECB action will be conditional as well as delayed, before being aided further euro-zone governments must first use their bailout funds.
Since making his provocative statement Draghi has felt the pressure coming at him from all sides. The clamour from investors and European/U.S. leaders has been intense as they demand he delivers on the promise which saw tension on the debt market ease.
Today’s announcement left financial markets predominately underwhelmed. Instead of the swift, decisive action justifiably expected by some investors it appears that only conditional future action has been decided on.
Draghi intimated that any form of intervention taken by the ECB wouldn’t start until September at the earliest. It would also be dependent on those countries experiencing trouble on bond markets making a direct appeal, being closely supervised and accepting exacting conditions.
Ioan Smith, a strategist at Knight Capital, expressed a common sentiment; ‘It is quite disappointing… There is a lack of any action so [Draghi] has basically passed the buck back on to politicians.’
Today’s statement came with the backing of all members of the Governing Council, with one rather important exception – Germany’s Bundesbank, and it’s President Jens Weildmann.
This was hardly a surprise; the Bundesbank has long been vocal with warnings concerning the inflationary dangers surrounding non-standard measures like bond buying.
Draghi asserted that the euro-zone’s top gun was the only source of resistance to the chosen measures. He also indicated that before a final vote to take action can occur there will be more effort made in convincing the Bundesbank.
Draghi stated: ‘The decision to do whatever it takes to preserve the euro as a stable currency has been unanimous. It’s clear and it’s known that [Germany's] Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then [we] will take a final decision and the votes will be counted.’
Some have interpreted this slightly vague summation to mean that Draghi may outvote the German Central Banker (and face all the resulting backlash) if it proved to be necessary.
We shall see…