Draghi's Action Plan Cheat Sheet: "Not Many Options Left"

Tyler Durden's picture

Between Eurostat's lengthy forecasts, the press release, and Draghi's droning on... it's easy to get lost in what was delivered, what was promised, and what it means... here is the ultimate ECb announcement cheat sheet. Simply put, Draghi does not have many options left.

 

Source: @MxSba

 

Think QE is coming anytime soon? Think again, says Morgan Stanley...

ECB may prefer to cut policy rates a little further instead of embarking on a QE program, Elga Bartsch, economist at Morgan Stanley, says in client note.

 

ECB isn’t ready yet to deploy balance sheet; hurdle to QE remains high

 

ECB sees balanced risks to CPI outlook and downside risks to growth; EUR played a less prominent role compared to last month

And here's why QE is such an issue - as we noted previously...

December 2011 - ECB Press Conference

 

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.

 

2/9/12 - ECB Press Conference

 

Question: I also had a question on the EFSF. If the ECB were to transfer the bonds it has acquired under the SMP to the EFSF, would that be monetary financing?

 

Draghi: The EFSF is like a government. Giving money to governments is monetary financing.

It would appear that Draghi may have some trouble explaining that...