Goldman Says European QE Will Come In 2015 At The Earliest, If At All

Tyler Durden's picture

It appears someone finally read what none other than Mario Draghi said about the prospect of Eurozone QE back in December 2011. To wit:

Question: Why is it so impossible for the ECB to act like the other central banks, like the Federal Reserve System or the Bank of England? Why do you not act more directly to help European countries by buying up the debt on a massive scale?

 

Draghi: As I said before, we have a Treaty and the Treaty states what our primary mandate is, namely to maintain price stability. Also, the Treaty prohibits monetary financing. I am old enough to remember that, when this Treaty was written in the early 1990s, some of the countries around that table were actually doing what you suggest doing now, namely some of the central banks of these countries were financing the government expenditure of their governments through money creation, and the consequences were there for all of us to see. That is why, in a sense, this Treaty embodies the best tradition of the Deutsche Bundesbank, whereby monetary financing has always been prohibited. 

 

Question: Mr Draghi, speaking in Parliament you also emphasized that the ECB would ensure price stability in both directions. Does that mean that there is a fear of deflation? My second question is, from a purely legal point of view, do you think there is any limitation on the ECB regarding the amount of government bonds that can be bought, as long as it can be justified on the basis of monetary policy considerations.

 

Draghi: At the present time we do not see a high probability of deflation. That is one point to keep in mind. The second point is, as I have said many times, that the purpose of the SMP is to reactivate the transmission channels of monetary policy. As I said in the statement to the European Parliament, the SMP is neither eternal nor infinite. We must keep this in mind and we do not want to circumvent Article 123 of the Treaty, which prohibits the monetary financing of governments.

 

And secondly, you have mentioned Article 123 in the Treaty. Would you consider active buying at around the time certain instruments are issued to be something that would be state financing, and would you regard that as being against ECB law?

 

Draghi: On the first issue, we are aware of the technical complexities that would arise with the SMP having an infinite size, but we will think about this. As for the other question, one can construct many different cases. But, as I said before, the key thing is that we should not try to circumvent the spirit of the Treaty. No matter what the legal trick is, I think what matters for the people and what matters for the confidence and credibility of the institution is the spirit of this provision of the Treaty.

Funny how three years later Draghi couldn't care less about the "credibility of the institution." However, the issue with Article 123 still remains. Which is why we were not at all surprised to find out that none other than the bank that spawned Mario Draghi said not to expect a European QE until 2015 at the earliest... if at all.

From Bloomberg:

  • Goldman’s Andrew Wilson Says QE in Europe a 2015 Story If at All
  • European economy would have to weaken significantly before QE comes into play, said Andrew Wilson, co-head of Global Fixed Income and Liquidy management team at Goldman Sachs Asset Management.
  • Says Draghi has foreshadowed policy easing at next meeting, expects ECB to cut rates 1-2 times before they look to other methods such as an LTRO
  • Says if other methods don’t work it would “ultimately have to be QE”
  • Wilson was speaking at media roundtable in London

Of course, the biggest irony here is that should the algos and few residual non-manipulated FX traders left continue to push the EURUSD lower, then the ECB will have zero incentive at all to act, which of course will send the EURUSD soaring right back up to 1.40. Which, further as Deutsche warned, would "shatter" the ECB's credibility... but who really thinks any central bank has any credibility left?