And Here Is What Draghi CAN Do, In His Own Words

Tyler Durden's picture


For those stunned that the market is reacting as euphorically as it is to remarks which are basically a rehash of prior Draghi statements and are nothing new, or that bond yields are ripping in on the implicit threat that Draghi may reactivate the SMP, in the process further subordinating bondholders and cramming them down forcing even more selling, here is a sampling of previous Draghi statements explaining what he can do, and more importantly, what he is allowed to do under the existing European framework. Which is why we find it not very surprising that Draghi waited until all usual German suspects are on vacation and are thus unable to immediately issue a press release as to the structural limitations of what Draghi can do. Because when in doubt, ask this: does export-heavy Germany want a strong or a weak euro?

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.


h/t Wallstreetmane

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Thu, 07/26/2012 - 07:58 | 2652543 battle axe
battle axe's picture

Does Germany want a Euro at this point, is the question.

Thu, 07/26/2012 - 08:01 | 2652551 Rubicon
Rubicon's picture

Verpiss dich Draghi!

Thu, 07/26/2012 - 08:13 | 2652582 GetZeeGold
GetZeeGold's picture



I'm guessing I win something?


Thu, 07/26/2012 - 08:25 | 2652617 Stock Tips Inve...
Stock Tips Investment's picture

Greece is close to leave the Euro. Spain is suffering the consequences of the absence of monetary policy (will be missing the old "Peseta"?). Italy is being forced to pay more for daily funding. The austerity measures of these countries, without help from monetary policy, will make very difficult the economic recovery. The Euro is in danger.

Thu, 07/26/2012 - 08:42 | 2652656 GetZeeGold
GetZeeGold's picture



Thank you for that report Capt. Obvious.


Thu, 07/26/2012 - 08:07 | 2652570 Nussi34
Nussi34's picture

Every time I see these ugly Euro notes in my wallett I need to vommit!

Thu, 07/26/2012 - 08:16 | 2652597 LULZBank
LULZBank's picture

You can give them to me.

Thu, 07/26/2012 - 08:19 | 2652599 Cast Iron Skillet
Cast Iron Skillet's picture

buy gold! ... (and learn to spell)

Thu, 07/26/2012 - 08:23 | 2652610 disabledvet
disabledvet's picture

"you go with the euro you got."

Thu, 07/26/2012 - 09:34 | 2652815 THE DORK OF CORK
THE DORK OF CORK's picture

Its more of the peripheral elites wanting the Euro me thinks.

Germany (whoever Germany is /was) is using these weak corrupt domestic elites as a tool of extraction.

Although most of the serfs simply don't understand the nature of the Euro - (it can only grow by increasing private debt) 

The post 1987 nightmare EMU world feels like a car crash to most - in fact it was a car bomb but they dare not tell them for fear of......

At least the poor saps got to drive a BMW before it all ended.

Thu, 07/26/2012 - 11:50 | 2653394 TPTB_r_TBTF
TPTB_r_TBTF's picture

noone asked the Germans before if they wanted the Euro; why would anyone ask them now?

The Euro was shoved down the Germans' throats.  Why would anything be different now?  They swallowed before...

Thu, 07/26/2012 - 07:58 | 2652544 LULZBank
LULZBank's picture

My words move markets Bitchezz!!!

Thu, 07/26/2012 - 08:43 | 2652662 GetZeeGold
GetZeeGold's picture



Taking cover as we speak....thanks for the warning.


Thu, 07/26/2012 - 07:59 | 2652545 Rubicon
Rubicon's picture


Thu, 07/26/2012 - 08:00 | 2652549 falak pema
falak pema's picture

Read my lips...we've heard that before ! 


Thu, 07/26/2012 - 08:01 | 2652552 Cdad
Cdad's picture

Absolutely perfect response to today's lunacy.  Thanks, Tyler.

Thu, 07/26/2012 - 08:05 | 2652561 buzzsaw99
buzzsaw99's picture

another pathetic bot-induced move in the "market" :yawn:

Thu, 07/26/2012 - 08:07 | 2652567 Peter Pan
Peter Pan's picture

This alchemist Draghi is a nuisance to society. We are all better of reading THE ALCHEMIST by Pablo Coelho.

These bankers and politicians are just fixated on saving the bacon of debt holders so that they can maintain their control of miserable debt laden people.

Why don't they track down that undelared 21 trillion dollars in various havens, freeze it and then use it to buy back the freedom of debt slaves.

Thu, 07/26/2012 - 08:57 | 2652709 Bahamas
Bahamas's picture

"We are all better of reading THE ALCHEMIST by Pablo Coelho."

Or even better , listen to THE ALCHEMIST by Iron Maiden.

Thu, 07/26/2012 - 08:07 | 2652568 Dr. Engali
Dr. Engali's picture

"we have a treaty" ......."this treaty".... "the treaty".... It sounds like he is saying "this treaty is shackling my hands" Kind of like Bush's comment about the constitution " it's just a g*#damn piece of paper".

Thu, 07/26/2012 - 08:07 | 2652572 fonzannoon
fonzannoon's picture

Here is the awesome part. Draghi is laying the groundwork to dilute the shit out of the euro and the euro is rising on this news. If Bernanke wants a weak dollar he better not do QE3.

Thu, 07/26/2012 - 08:25 | 2652618 disabledvet
disabledvet's picture

It could be argued he...and the other Mario's I might add (lotta financial positions of power among them right now) are trying to rationalize the debts markets. VERY risky...

Thu, 07/26/2012 - 09:00 | 2652719 Peter Pan
Peter Pan's picture

The Italian Stock Market is almost 3% up. Draghi's announcement must sound really good in Italian. Maybe language is the problem and not economics.



Thu, 07/26/2012 - 10:00 | 2652933 zaphod42
zaphod42's picture

Geez, Fonzie, does anyone really think the Dollar is strong? 


All we are seeing is the Greenback & the Euro falling in lock-step.  The only thing the Euro could be strong against is the USD, and vice-versa.  Of course, today, only Chinese money is worth much, and even they are living in fantasyland.


Without cheap energy, economic growth is a myth.  Welcome to Never Never.



Thu, 07/26/2012 - 08:08 | 2652573 tu-ne-cede-malis
tu-ne-cede-malis's picture

National sovereignty is so overrated



Thu, 07/26/2012 - 08:13 | 2652585 Peter Pan
Peter Pan's picture

So please explain how the significant debt, unemployment and social upheavel could be resolved if Europe was under one government. Before answering please tell me why a Federal Government for the USA has not worked wonders.

Thu, 07/26/2012 - 08:46 | 2652667 tu-ne-cede-malis
tu-ne-cede-malis's picture

/s = sarcasm.


The only sovereignty I like and find truly legitimate is individual sovereignty.

Thu, 07/26/2012 - 08:57 | 2652710 Peter Pan
Peter Pan's picture

My friend, thank you for the reply. The /s symbol is new to me. :)

Thu, 07/26/2012 - 09:11 | 2652769 ATM
ATM's picture

Why if they were to Federalize then the centralized powers could change the Treaty, allow for unlimited printing, spread the pain and tell the people to do whatever the fuck they want them to do.

It is so much better for those in power! For the people not so much. They are going to get fucked either way. None are as rich as they believe and almost everyone will be at a lower standard of living. The winners of course will be the bureaucrats. Everyone else is fucked.

Thu, 07/26/2012 - 08:09 | 2652574 EZT
EZT's picture

One word, Panic!

Thu, 07/26/2012 - 08:14 | 2652591 GetZeeGold
GetZeeGold's picture



Stop at apprehension.......we can always panic later.


Thu, 07/26/2012 - 08:13 | 2652581 Ted K
Ted K's picture

Draghi forcing cramdown on bondholders???  Either in a million years or when Hell freezes over, whichever comes first.  Cramming down bondholders would mean the fat cats also have to take responsibility for their actions/investments.  People like Christine Lagarde and ZH's Tyler Durden would never stand for it.  In their opinion eating shit is exclusively for retail investors.  And that after all the 2+ years work Durden and Sprott have done selling them gold??  Holy Guacamole!!!!

Thu, 07/26/2012 - 08:13 | 2652583 fonzannoon
fonzannoon's picture

What the F is going on with XOM? The media is reporting it as the biggest earnings beat in stock market history, The stock looks like it's going nowhere...

Thu, 07/26/2012 - 08:14 | 2652588 lizzy36
lizzy36's picture

Summits, Pledges, CB's oh my.

Of course Draghi is going to "pledge" to save the EURO. Without it he is unemployed, if only for a brief period ;)

zeeee price stability.

Thu, 07/26/2012 - 08:22 | 2652608 Ted K
Ted K's picture

Lizzy, where did you learn about the world of finance, "Louisiana Vo-Tech School for Tattooed Hoes"??? The only thing Draghi needs worry/fear is if Goldman Sachs didn't employ an intern to keep his seat warm while he was gone.

Thu, 07/26/2012 - 09:22 | 2652801 JPM Hater001
JPM Hater001's picture

Hey, she has a BS not some crummy useless tech school degree in tattooed hoes so back off my girl.

Thu, 07/26/2012 - 08:14 | 2652590 StockHut
StockHut's picture

Hasn't the ECB been moentizing sovereign debt this whole time?

Thu, 07/26/2012 - 08:45 | 2652665 NoClueSneaker
NoClueSneaker's picture

... definately ... but italian synergies even better - Mario forced Mario to load the junk into the italian banks as collateral .

Unicredit, Intesa San Paolo & Mediobanca ready to blow .

Thu, 07/26/2012 - 08:16 | 2652593 ak_khanna
ak_khanna's picture

Countries around the world are taking on more debt without any fruitful attempts to curb their expenditures. This has resulted in a much more fragile and artificially held up financial system which is on a much shaky ground than it was in 2008. In 2008 companies failed due to excessive leverage and debt and now countries are likely to default because they took on the same bad debt on themselves. The borrowing costs or bond yields for these countries are again at record highs for the year due to their deteriorating financial condition.

A single currency for an economy as strong as Germany on one hand and relatively weaker economies like Greece or Ireland on the other is not sustainable in the long run. The idea of the stronger countries in the Euro zone to keep on bailing out the weaker ones repeatedly will be a difficult one to sell to the citizens of the economically stronger countries. Their is no practical way to save the Euro, the only thing that the politicians can do is to lavishly spend tax payers money towards bailouts which creates a much bigger crises a few months down the line but does not solve anything.

Thu, 07/26/2012 - 08:19 | 2652600 i_call_you_my_base
i_call_you_my_base's picture

Any time spainish bond yields hold above 7% and the eurusd gets too close to $1.20 they juice it with a jawboning. This was predictable.

Thu, 07/26/2012 - 08:20 | 2652604 lizzy36
lizzy36's picture

Zee Treaty and Zee price stability.

Neither is a subsitute for the 2-3 Trillion Euros necessary to save the EZ.

But when one can't do MATH one can only fall back on a pledge and a summit.

Thu, 07/26/2012 - 08:22 | 2652606 Peter Pan
Peter Pan's picture

Hail Draghi. His words have ignited European stock markets and they are now rising strongly. The grateful dogs of Pavlov are salivating but soon they will realise that Draghi is nothing better than a fart in a bottle.

Thu, 07/26/2012 - 08:25 | 2652616 Peter K
Peter K's picture

I think it is safe to state the following: Today, Drarhgi PANICED :)

Thu, 07/26/2012 - 08:48 | 2652676 cahadjis
cahadjis's picture

Panicked even

Thu, 07/26/2012 - 08:27 | 2652621 daily bread
daily bread's picture

Compare european markets to US markets:  in the US, a simple hint that Hilsenworth might write "something" an hour from now is enough to send the DOW up 1%.  In Europe, Draghi actually has to show up and say a few empty words before the EU exchanges react.  In summary, the US has highly trained dogs, and Europe only has trained dogs.

Thu, 07/26/2012 - 11:14 | 2653261 falak pema
falak pema's picture

This Draghi thingie has pushed the markets up and brought down the rates of Spain and Italy.

What does this prove?

It doesn't prove that the Euro is now safer. It DOES PROVE that this play on Spanish rates is TOTALLY speculative.

The vulture funds got scared away, thats what this proves!

This whole shit scam of a market is there to fleece the people. Period. Draghi shows up in this knee jerk the greedy,  panicky nature of speculative plays by blind mice who don't know were to put their hot money.

Without these vulture markets the world would be better off.

Its time to kill this pretence of rational markets and call it what it is : predatory capitalism and all these guys deserve to burn in hell.

Thu, 07/26/2012 - 09:03 | 2652624 falak pema
falak pema's picture

The big issue is sovereign bond yields in club med; if the banking licence helps the ESM to get round the interdiction of direct lending by ECB to sovereings via euro bonds that might paper over the fact that "officially" the ECB does not have the mandate to eurobond, as long as fiscal unity is NOT there in WHOLE eurozone. And it won't be before 2014 earliest, if at all!

This is all temp measures and it looks like too little and too late. So its can kicking as best.

We will get a clearer picture on how MErkel negotiates past the Karlsruhe Supreme court decision and how the ESM, if it flies, is structured. In the meantime...Spain and Italy pray....and Soros is like Mount Etna ready to smoke Armageddon if he feels its time to make the big move on Euro.

Here is the gist of his current statement today in French :


Son intervention pourrait aussi passer par l'octroi d'une licence bancaire au futur fonds de secours européen MES, comme l'avait évoqué la veille Ewald Nowotny, président de la banque centrale d'Autriche et à ce titre membre du conseil des gouverneurs de la BCE.

"Il y a des arguments favorables" à l'octroi de cette licence bancaire, a-t-il, ce qui permettrait au MES d'emprunter auprès de la BCE et d'augmenter ainsi considérablement sa force de frappe fixée actuellement à 500 milliards d'euros.

Or le MES est autorisé à acheter des obligations publiques des Etats de la zone euro en cas de nécessité. C'est aussi le cas du fonds actuellement en place, le FESF, dont les statuts prévoient qu'il puisse intervenir sur le marché secondaire de la dette, après toutefois un feu vert d'une commission budgétaire des députés allemands.

...The ESM would lend directly, as the EFSF does today subject to agreement by the budgetry commission of the German Parliament...his concluding remark.


Thu, 07/26/2012 - 08:48 | 2652675 kaa1016
kaa1016's picture

In a market with many reasons for the decline, they have to keep the shorts nervous. If the shorts were able to sell the market without any fear, this market would collapse. Think about how many times the market ripped higher in '08 before plunging days later. They have to keep the headline risk of a market ramp firmly in the mind of the short sellers. Remember one of Bernanke's only tools left, communication...

Thu, 07/26/2012 - 09:01 | 2652726 mendigo
mendigo's picture

Do thier words move markets or do they use words as cover for thier manipulation of the market?

Thu, 07/26/2012 - 09:02 | 2652728 john_connor
john_connor's picture

There were too many bearish charts posted over the past 2 days so a squeeze doesn't surprise me.

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