ECB's Willful Ignorance: Leaking Central Bank Says Austerity "Compliments" QE

Tyler Durden's picture

Earlier this week, the ECB’s Benoit Coeure pulled a Janet Yellen and told a non-public audience of hedge funds that because markets are usually less liquid in the July-August “lull”, the central bank would be “slightly” front-loading PSPP purchases in May and June. This bit of very material, very non-public information promptly triggered a quick move lower in the EURUSD before things calmed down. Some ten hours later, the ECB was kind enough to share that information with the public which of course precipitated a 150 pip EURUSD plunge prompting us to ask just how many other mysterious market moves can be explained by "Chatham House rule" meetings heald by The ECB each day/week/month?

The ECB’s move to front-load asset purchases effectively means that QE will be expanded in months when net supply is positive and tapered when negative, which underscores a feature of PSPP that sets it apart from QE in the US and Japan: Mario Draghi is buying at a time when European governments have been cornered into an austerity fixation by the troika, meaning in many cases, monthly asset purchase targets will be difficult to hit owing lackluster supply. 

This of course highlights something rather absurd about the ECB’s asset purchase program specifically, and about Brussels’ stance on fiscal discipline more generally. Namely, there’s something quite contradictory about telling governments to tighten their belts while promising to buy any and every piece of paper their treasury departments care to issue. In fact, it’s probably fair to say that a €1.1 trillion QE program simply cannot peacefully coexist with a strict, currency bloc-wide austerity policy.

This glaring contraction was on full display at the ECB’s April 14-15 policy meeting, minutes show.

Here’s more via the ECB:

Since the Governing Council’s previous monetary policy meeting on 4-5 March 2015, the implementation of the ECB’s expanded asset purchase programme (APP) had had a significant impact on euro area financial markets, contributing to further declines in government bond yields, while higher levels of excess liquidity had put downward pressure on euro money market rates. The euro had continued to depreciate against the US dollar, reaching a low of USD 1.05 per euro.


Since the start of purchases under the public sector purchase programme (PSPP) on 9 March, sovereign bond yields had declined further, reaching new historical lows in almost all euro area jurisdictions, the impact being strongest at the longer end of the yield curve. However, over the course of the month, yields in some jurisdictions had partly reversed the earlier declines that had immediately followed the start of the programme. Yield curves had remained lower and flatter than on 4 March, i.e. just before the announcement of the details on PSPP implementation. The downward shift was even more apparent when comparing prevailing yield curves with those observed immediately before the announcement of the APP on 22 January.

In other words, the ECB’s announcement in January has made it easier for EMU governments to borrow (the opposite of fiscal discipline), recent bond market turmoil notwithstanding. But the ECB is willfully ignorant (at least we hope it’s willful, although with central bankers, it’s hard to say what they might or might not understand) of the fact that its policies run counter to notions of fiscal restraint:

At the same time, a strong signal needed to be sent to euro area governments urging them to press ahead with structural reforms and to take measures to improve the business environment. Only with such complementary action could the full benefits of the monetary policy measures be reaped. Swift and effective implementation of appropriate reforms in the euro area would not only lead to higher sustainable growth in the medium to long term but also raise expectations of permanently higher incomes and encourage households to expand consumption and firms to increase investment already in the near term. In addition, fiscal policies should support the economic recovery while remaining in compliance with the Stability and Growth Pact.

It doesn’t get much more ridiculous than that. Coeure has just called fiscal reform “complementary” to a €1.1 trillion government bond buying program. But these two things aren’t complimentary at all, a fact which is on full display in Germany where the government does not need to borrow money, meaning that unless Bunds can be purchased in the secondary market, QE simply can’t be implemented in full under the capital key. 

With these types on conflicting messages coming out of EMU officials, is it any wonder that "ascendant" socilaists are challenging austerity?

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AIIB's picture
AIIB (not verified) May 22, 2015 1:04 AM

The most important FED minutes, EVER!

Ignorance is death's picture

The grammar nazi in me makes me point out that there is a difference between complement and compliment. And even though the statement is equally nonsensical with "compliments" as it is with "complements", only the latter is correct in this case.

CHX's picture

"Compliments" (??? WTF) != "complements". BIIIG difference.

(Tyler, get your title straight)

tc06rtw's picture

"Leaking Central Bank" (??? WTF) != "Leading Central Bank". BIIIG difference.

katchum's picture

Both policies are reducing debt:

QE to inflate debt away.

Austerity to reduce debt.

TeethVillage88s's picture

Flat Earth - Wikipedia, the free encyclopedia View by Ixquick Proxy - Highlight

The Jewish conception of a flat earth is found in biblical and post-biblical times. Imago Mundi Babylonian map, the oldest known world map, 6th century BC ...

- Who knew the Bible describes a Flat Earth and this traced back to Mesopotamia.

- Also confuse people with Rhetoric, complicated new words, complex systems, lofty Institutions kept in secret

- And Cloud peoples minds, so they can't apply logic, control the central government and tell the people their government is their own creation

- Seek out all known funds or trust funds for new money flows to your Trust or corporation, cause banking & credit panics in order to implement new reforms and new programs

Monetas's picture

The pyramids at Giza .... and the colonades at Palmyra .... (and the Suez canal) .... were not built by Muslims .... the blood thirsty savage Mohammad came later .... around 700 AD .... Lawrence of Arabia knew how to treat these scumbags .... set them against each other !

Brazen Heist's picture

Its one big club, and you ain't in it!

Sanity Bear's picture

that's not willful ignorance, that's the plan

ANestIOS's picture

You said it Tylers: "It doesn’t get much more ridiculous than that"

[I posted the following yesterday: What a lot of people in the eurozone (in the PIIGS mainly thus the antiausterity messages from mainstream politicians) is how NOW that there is a huge out in the open euroQE program there is not even the prospect of a loosening of the hard austerity measures that affect their livelihoods. 

(as opposed to the UK where QE was linked to the banking systems collapse avoidance the euroQE has been presented as economic growth promoting thus the implicit suspicion...)]

MATA HAIRY's picture

and QE replies: "you are very nice, too, Austerity!"

Kina's picture

The QE is pointless as none of it is for stimulating the economy, not pushing money flow through the economy, on the contrary pumping QE into the hands of those who thus dodn't have to worry so much about business income apart from pumping stocks with free money and etc...


QE should always be going to those who will utilise it, you know pumping gas through the carb so the engine starts and keeps running. So far QE is for filling up the gas tanks of those who are gonna drive nowhere.



buzzsaw99's picture

This bit of very material, very non-public information...

This kind of crap doesn't bother me. One has to assume that "they" have "very material, very non-public information" all day every day and twice on Sunday. Furthermore "the market" would be likely to move differently than logic would dictate or that one might assume even if one had all the same timely info. Therefore, if one puts oneself in a position to be hurt by this (i.e. playing in "their" kitty box) then enjoy the screwing i say.

Duude's picture

While ECB QE does make it cheaper for European government's to float more debt, it doesn't mean they ought to increase their load at a faster rate than they otherwise would do in the general refunding process. They'll still have to service the accumulated debt load in the future, and that load will surely be refunded at an even higher rate later.

Fun Facts's picture

Austerity for the masses and a lifestyle of kings for the money masters has been the goal of this "financial system" [ponzi scheme] all along.

Monetas's picture
Monetas (not verified) May 22, 2015 6:42 AM

This "Obsession with Austerity" .... has got to stop !

Dumgoy's picture
Dumgoy (not verified) May 22, 2015 6:56 AM

print MO' MONEY!