• 368 days Will The ECB Continue To Hike Rates?
  • 369 days Forbes: Aramco Remains Largest Company In The Middle East
  • 370 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 770 days Could Crypto Overtake Traditional Investment?
  • 775 days Americans Still Quitting Jobs At Record Pace
  • 777 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 780 days Is The Dollar Too Strong?
  • 780 days Big Tech Disappoints Investors on Earnings Calls
  • 781 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 783 days China Is Quietly Trying To Distance Itself From Russia
  • 783 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 787 days Crypto Investors Won Big In 2021
  • 787 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 788 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 790 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 791 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 794 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 795 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 795 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 797 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Merk Commentary: ECB Meeting - No Horse Trading, No Additional Money Printing (for now)

Draghi stuck to his guns in today's press conference of the European Central Bank. Keeping the main refinancing rate unchanged, he discarded various proposals on how the ECB could bail out peripheral governments. Specifically:

  • There is no quid pro quo, no horse trading. That is, if there's a path towards fiscal union, it does not mean the ECB will, for example, finance sovereigns.
  • It is not right for the ECB to fill in for other institutions' lack of action.
    • Specifically, while the LTROs have prevented more serious credit crunches/disruptions, liquidity is abundant. But there is fragmentation: some of the issues have nothing to do with monetary policy.
  • On Spanish bank re-capitalization:
    • Whether or not Spain should get external help should be based on facts, not politics: any EFSF decision should be based on a realistic assessment of needs to recapitalize banks and money available to government without need for external support.
  • Regarding talk of pundits claiming that time is running out to fix the Eurozone:
    • Draghi disagrees that there is a deadline, but agrees with the general fears. He says there needs to be a defined process, one where policy makers have clearly defined roles, deadlines and conditions to be satisfied. In our assessment, this is the single most important item to get the euro to strengthen. The lack of process, the dysfunctionality in Eurozone decision making, independent of whether we would agree with the goals, is weighing most on the euro.
  • Draghi ready to act should economy deteriorate further
    • Draghi did not specify how such action would take place. He pointed out that there are already negative real interest rates and downplayed the likely effectiveness of additional nonstandard measures. Having said that, Draghi did announce that various funding facilities remain in place.

Our conclusion: To get more monetary easing in the short- to medium term, count on the Federal Reserve, not the ECB.

 


Please sign up for our newsletter to be informed as we discuss global dynamics and their impact on currencies.

 

Back to homepage

Leave a comment

Leave a comment